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Effects of political institutions on the external debt-economic growth nexus in Africa

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  • Nounamo, Yann
  • Asongu, Simplice
  • Njangang, Henri
  • Tadadjeu, Sosson

Abstract

The main contribution of this study is the determination of an endogenous threshold of institutional quality, beyond which external debt would affect economic growth differently. The focus is on 14 countries of the African Franc zone over the period 1985-2015. Based on the panel Smooth Threshold Regression model, the results reveal that the relationship between external debt and economic growth is based on institutional quality. It is found that the level of indebtedness at which the effect of external debt on economic growth becomes negative is higher in countries with lower levels of corruption and high levels of democracy. This means that poor institutional quality prevents a country from taking full advantage of its credit opportunities. Thus, the more countries become democratic, the more debt helps finance economic growth. These results are robust to sensitivity analysis and Generalized Method of Moments estimation.

Suggested Citation

  • Nounamo, Yann & Asongu, Simplice & Njangang, Henri & Tadadjeu, Sosson, 2021. "Effects of political institutions on the external debt-economic growth nexus in Africa," MPRA Paper 110131, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110131
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    References listed on IDEAS

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    1. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    2. Kourtellos, Andros & Stengos, Thanasis & Tan, Chih Ming, 2013. "The effect of public debt on growth in multiple regimes," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 35-43.
    3. Joao Tovar Jalles, 2011. "The Impact Of Democracy And Corruption On The Debt-Growth Relationship In Developing Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(4), pages 41-72, December.
    4. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
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    More about this item

    Keywords

    external debt; political institutions; economic growth;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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