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

Author

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  • Shuffield Seyram Asafo
  • Adelajda Matuka
  • Nyendu Dominic

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.

Suggested Citation

  • Shuffield Seyram Asafo & Adelajda Matuka & Nyendu Dominic, 2019. "External Debt and Economic Growth: Two-Step System GMM Evidence for Sub-Saharan Africa Countries," International Journal of Business, Economics and Management, Conscientia Beam, vol. 6(1), pages 39-48.
    • Handle: RePEc:pkp:ijobem:v:6:y:2019:i:1:p:39-48:id:1206
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    Cited by:

    1. Asafo, Shuffield Seyram, 2019. "Exchange Rate Pass-through to Prices : Bayesian VAR Evidence for Ghana," MPRA Paper 92967, University Library of Munich, Germany.
    2. Khawar Abbas & Muqarab Abbas & Faisal Azeem Abbassi, 2022. "An Empirical Investigation into the Contribution of Foreign Aid to Economic Growth in Developing Countries: Exploring the Role of Democracy," Journal of Economic Impact, Science Impact Publishers, vol. 4(2), pages 32-38.
    3. Sanele Stungwa, 2024. "Is external debt an impediment to the South African economy?," Public Sector Economics, Institute of Public Finance, vol. 48(1), pages 103-124.
    4. Stungwa, Sanele, 2022. "Empirical modeling of South Africa’s external debt on economic growth (1994 -2020): NARDL Cointegration approach," MPRA Paper 112527, University Library of Munich, Germany, revised 19 Mar 2022.

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