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The impact of the Heavily Indebted Poor Countries initiative on growth and investment in Africa

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  • Djimeu, Eric W.

Abstract

Between 1996 and 2014, 30 Sub-Saharan African (SSA) countries benefited from debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI). The architects of the HIPC initiative and MDRI posited that these programs would spur growth and investment. This paper exploits the variability of participation in the HIPC initiative and MDRI across time and country, in order to identity the effect of participation on growth and investment. I find that the decision point and post-completion point periods of the enhanced HIPC initiative are associated with a 1.762 percentage point and 3.139 percentage point increase in public investment, respectively. The impact is higher in countries with low access to international capital markets. The enhanced HIPC initiative increases private investment by 1.838 percentage points during the post-completion point period in countries with low access to international capital, for approximately two years, but has no effect on growth or foreign direct investment. I find no effect of the original HIPC initiative or MDRI on growth, private investment, public investment or foreign direct investment. I find no heterogeneous impact of the enhanced HIPC initiative on growth and foreign direct investment by level of indebtedness, access to international capital markets, or institutional quality. As the measures of institutional quality have barely changed between 1996 and 2014 in HIPC countries, the results of this paper suggest that without a strong improvement in institutional quality, debt relief is unlikely to boost investment and growth in Africa. Possible future debt relief in SSA countries should be associated with a component directly aimed at improving institutional quality. If an improvement of institutional quality is not feasible in the short run, debt relief in SSA countries should aim to support public investment.

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  • Djimeu, Eric W., 2018. "The impact of the Heavily Indebted Poor Countries initiative on growth and investment in Africa," World Development, Elsevier, vol. 104(C), pages 108-127.
    • Handle: RePEc:eee:wdevel:v:104:y:2018:i:c:p:108-127
    DOI: 10.1016/j.worlddev.2017.11.002
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    Cited by:

    1. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.
    2. Marin Ferry, 2021. "Quel bilan tirer des initiatives d'annulation de la dette des pays pauvres très endettés ?," Revue d'économie financière, Association d'économie financière, vol. 0(1), pages 225-240.
    3. Olumide Olusegun Olaoye, 2022. "Sub‐Saharan Africa's debt‐financed growth: How sustainable and inclusive?," African Development Review, African Development Bank, vol. 34(4), pages 443-458, December.
    4. Chirambo, Dumisani, 2018. "Towards the achievement of SDG 7 in sub-Saharan Africa: Creating synergies between Power Africa, Sustainable Energy for All and climate finance in-order to achieve universal energy access before 2030," Renewable and Sustainable Energy Reviews, Elsevier, vol. 94(C), pages 600-608.
    5. Maxime TERRIEUX & Benoît Jonveaux & Marin Ferry (Université Gustave Eiffel, DIAL), 2021. "Debt sustainability in Africa: state of play and future challenges," Working Paper 5b1b8e30-4a94-42f3-9e4b-9, Agence française de développement.
    6. Maxime TERRIEUX & Benoît Jonveaux & Marin Ferry (Université Gustave Eiffel, DIAL), 2021. "La soutenabilité des dettes en Afrique : état des lieux et enjeux futurs," Working Paper 5b1b8e30-4a94-42f3-9e4b-9, Agence française de développement.
    7. Benno J Ndulu & Stephen A O’Connell, 2021. "Africa’s Development Debts [Is Debt Relief Efficient?]," Journal of African Economies, Centre for the Study of African Economies, vol. 30(Supplemen), pages 33-73.
    8. Ferry, Marin & Raffinot, Marc & Venet, Baptiste, 2021. "Does debt relief “irresistibly attract banks as honey attracts bees”? Evidence from low-income countries’ debt relief programs," International Review of Law and Economics, Elsevier, vol. 66(C).
    9. Olumide Olusegun Olaoye & Phillip A. Olomola, 2023. "Sub‐Saharan Africa's rising public debt stock: Is there a cause for concern?," South African Journal of Economics, Economic Society of South Africa, vol. 91(1), pages 85-115, March.
    10. Marine De Talancé & Marin Ferry & Miguel Niño-Zarazùa, 2019. "Did Debt Relief Initiatives help to reach the MDGs? A Focus on Primary Education," Erudite Working Paper 2019-23, Erudite.
    11. Ferry, Marin & de Talancé, Marine & Niño-Zarazúa, Miguel, 2022. "Less debt, more schooling? Evidence from cross-country micro data," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 153-173.
    12. Chuku, Chuku & Lang, Lin & Lim, King Yoong, 2023. "Public debt, Chinese loans and optimal exploration–extraction in Africa," Energy Economics, Elsevier, vol. 118(C).
    13. Olumide Olusegun Olaoye & Mosab I. Tabash & Olatunde Julius Omokanmi & Rotimi Ayoade Ogunjumo & Matthew Oyeleke Ojelade & James A. Ishola, 2022. "Macroeconomic implications of escalating stock of public debt: Evidence from sub‐Saharan African economies," African Development Review, African Development Bank, vol. 34(4), pages 527-540, December.
    14. Belinda Archibong & Brahima Coulibaly & Ngozi Okonjo-Iweala, 2021. "Washington Consensus Reforms and Lessons for Economic Performance in Sub-Saharan Africa," Journal of Economic Perspectives, American Economic Association, vol. 35(3), pages 133-156, Summer.
    15. Raffaele De Marchi, 2022. "Public debt in low-income countries: current state, restructuring challenges and lessons from the past," Questioni di Economia e Finanza (Occasional Papers) 739, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    HIPC initiative; Debt relief; Growth; Investment; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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