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Does the Quality of Economic Institutions Influence the Link Between External Debt and Growth? Evidence from the African Franc Zone

In: Financing Africa’s Development

Author

Listed:
  • Yann Nounamo

    (University of Douala)

Abstract

The aim of this paper is to analyse the role of economic institutions in the relationship between external debt and economic growth in the African Franc zone. The methodology focuses on generalized moment method (GMM) of Blundell and Blond (1998). The sample includes 12 countries within the period 1985–2015. We adopted the classification of economic institutions proposed by Rodrik (2005) from the empirical analysis. We derive the following conclusions. Economic institutions are a brake on the economic performance of those countries: (i) Quality of market creation institutions negatively affect the debt–growth nexus in the area. Similarly, market regulatory institutions have a negative impact. (ii) Market stabilization institutions have positive effects on debt–growth nexus. In other words, to stimulate economic growth through debt, it is necessary to have better institutions in order to make external debt profitable for growth in the African Franc zone. (iii) For the whole zone, we obtain an optimal debt threshold which is 50.56% of GDP for the sample considered.

Suggested Citation

  • Yann Nounamo, 2020. "Does the Quality of Economic Institutions Influence the Link Between External Debt and Growth? Evidence from the African Franc Zone," Advances in African Economic, Social and Political Development, in: Diery Seck (ed.), Financing Africa’s Development, pages 73-83, Springer.
    • Handle: RePEc:spr:aaechp:978-3-030-46482-0_5
    DOI: 10.1007/978-3-030-46482-0_5
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