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Government domestic debt arrears and private investment in Sub-Saharan Africa

Author

Listed:
  • Evans Kulu
  • William Gabriel Brafu-Insaidoo
  • James Atta Peprah
  • Eric Amoo Bondzie

Abstract

Purpose - This study investigates the effect of government domestic payment arrears on private investment. The authors argue that an increase in government domestic arrears can reduce private sector investment owing to the competition for credit. Design/methodology/approach - The prediction is empirically tested using data for 33 Sub-Saharan Africa (SSA) countries for the period 2007–2018 using a panel general methods of moment estimation technique. This is also complemented with impulse responses derived from the standard vector autoregressive model. Findings - The results show that an increase in government domestic arrears adversely affects private investment in SSA and most subregional communities within SSA. It also revealed that private investment negatively responds to shocks in government domestic arrears. Originality/value - This is the first study that attempts to investigate the effect of government domestic borrowing arrears on private investment. It seeks to serve as a guide to governments in their domestic borrowing decisions to ensure timely servicing.

Suggested Citation

  • Evans Kulu & William Gabriel Brafu-Insaidoo & James Atta Peprah & Eric Amoo Bondzie, 2022. "Government domestic debt arrears and private investment in Sub-Saharan Africa," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 13(2), pages 190-204, January.
    • Handle: RePEc:eme:ajemsp:ajems-06-2021-0281
    DOI: 10.1108/AJEMS-06-2021-0281
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    Citations

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    Cited by:

    1. Obaike John Ojeka & Tajudeen Egbetunde & Gideon Oseibibi Okoduwa & Aisha Omobolanle Ojeyode & Mumuni Jimoh & Gideon Oladele Ogunbowale, 2024. "Moderating effect of institutional quality on the influence of debt on investment in sub-Saharan Africa," Future Business Journal, Springer, vol. 10(1), pages 1-17, December.
    2. Evans Kulu, 2023. "Financial stability gap and private investment nexus: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 35(2), pages 239-250, June.
    3. Nelson Derrick Nguepi & Ibrahim Ngouhouo & Irina Bilan, 2024. "Foreign or Domestic Public Debt for Cameroon’s Development? An Externality Approach," Sustainability, MDPI, vol. 16(16), pages 1-27, August.

    More about this item

    Keywords

    Credit; Government domestic arrears; Private investment; Subregional communities; Sub-Saharan Africa; H74;
    All these keywords.

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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