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The effect of external debt on domestic investment in sub-Saharan African sub-regions

Author

Listed:
  • Arsène Aurelien Njamen Kengdo

    (University of Dschang, FSEG, Cameroon)

  • Luc Nembot Ndeffo

    (University of Dschang, FSEG, Cameroon)

  • Désiré Avom

    (University of Yaoundé 2 Soa, CEREG, Cameroon)

Abstract

This paper investigates the effect of external debt on domestic investment in sub-Saharan Africa (SSA) during the period 1980-2017. It focuses on four zones in SSA (EAC, ECOWAS, CEMAC and SADC) and the methodology adopted is the Generalized Method of Moments (GMM). The Results show that external debt has a positive effect on domestic investment in SADC and EAC, with bearable debt threshold, which account for 74.33% of Gross Domestic Product (GDP) in the EAC zone. For CEMAC and ECOWAS, the effect of external debt on domestic investment is rather negative, but for a debt threshold below 94.73% of GDP in CEMAC, the effect on investment is positive. Our results imply that public policies for improving domestic investment and assuring sustainable debt should be promoted: to concentrate investments in sectors with ripple effects that can boost other sectors; to observe multilateral surveillance across countries over the long term; and strengthening investment thanks to the improvement of the business climate.

Suggested Citation

  • Arsène Aurelien Njamen Kengdo & Luc Nembot Ndeffo & Désiré Avom, 2020. "The effect of external debt on domestic investment in sub-Saharan African sub-regions," Economic Research Guardian, Weissberg Publishing, vol. 10(2), pages 69-82, December.
    • Handle: RePEc:wei:journl:v:10:y:2020:i:2:p:69-82
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    Citations

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    Cited by:

    1. Arsène Aurelien Njamen Kengdo & Tii N. Nchofoung & Philemon Bonaventure Ntang, 2020. "Effect of external debt on the level of infrastructure in Africa," Economics Bulletin, AccessEcon, vol. 40(4), pages 3349-3366.
    2. Yusuf Abdulkarim, 2023. "A systematic review of investment indicators and economic growth in Nigeria," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.
    3. Oluseyi Omosuyi, 2024. "Public And Publicly Guaranteed External Debt, Debt Servicing And Investment In Emerging Economies," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 69(240), pages 31-56, January –.
    4. 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.

    More about this item

    Keywords

    External debt; Domestic investment; Generalized Method of Moments;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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