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External Debt and Economic Growth: Two-Step System GMM Evidence for Sub-Saharan Africa Countries

Shuffield Seyram Asafo

,

Adelajda Matuka

,

Nyendu Dominic

Shuffield Seyram Asafo 1 ,

Adelajda Matuka 1 Nyendu Dominic 3

  1. Department of Economics and Law University of Macerata, Italy 1

  2. Department of Economics and Law University of Cassino, Italy 3

Pages: 39-48

DOI: 10.18488/journal.62.2019.61.39.48

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Article History:

Received: 23 October, 2018
Revised: 30 November, 2018
Accepted: 03 January, 2019
Published: 28 February, 2019


Abstract:

This paper examines external debt and economic growth relationship in a panel of 48 Sub-Saharan Africa countries (SSA) for the period 1990-2017 using a two-step system General Method of Moments (GMM) technique. Our study shows that contemporaneously, external debt has a negative and statistically significant impact on GDP growth. However, the first lag of external debt variables stimulates GDP growth. The implication is that external debt accumulated in the previous period makes funds available for growth enhancing expenditure in the next period. Furthermore, our study found no evidence of a non-linear relationship between debt and economic growth. Lastly, we found that the deleterious impact of external debt on GDP growth does not preclude poor or rich SSA countries. We recommend the adoption of state-of-the-art measures in collecting domestic revenue to complement external revenue sources. In addition, we advocate for strong macroeconomic environment in SSA so that yield negotiation on the debt will not dissipate the coffers of SSA countries via high debt servicing cost.
Contribution/ Originality
This study uses new estimation methodology to unravel the external debt and economic growth nexus in Sub-Saharan Africa countries.

Keywords:

External debt, Economic growth, Panel data models, System GMM, Instrumental variables estimation, Econometric software.

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Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Special gratitude to all other graduate students and researchers who made their contributions towards the preparation of this paper. However, all errors remain the responsibility of the authors.

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