Economic institutions, political institutions and public debt in Sub-Saharan Africa

Abstract

PurposeThis study assessed the role of political institutions in the relationship between economic institutions and public debt in Sub-Saharan Africa.Design/methodology/approachBased on data availability, the study was done for 40 Sub-Saharan African countries from 2010 to 2019 employing generalized method of moment.FindingsThe authors documented a negative and significant relationship between economic institutions and public debt as well as a negative and significant effect of political institutions on public debt in SSA. Also, the study recorded that political institutions play a negative and significant role in the economic institutions-public debt nexus in Sub-Saharan Africa. However, a threshold of 3.691 is given when it comes to the role of political institutions in the association between government spending and public debt nexus in SSA.Research limitations/implicationsThe authors failed to take certain indicators of economic institutions, such as freedom to trade internationally, the size of government and legal system and property into consideration.Practical implicationsThe authors suggest that democracy is necessary for boosting economic institutions-induced public debt reduction in SSA.Originality/valueThe novelty of this study is evident in two ways: first, the authors assessed the relationship between economic institutions and public debt in SSA using novel measures such as government integrity, tax burden and government spending from the Heritage Foundation instead of traditional institution measures from World Governance Indicators used by earlier studies. The authors further contribute to literature by being the first to consider the foundational role of political institutions in employing economic institutions to fight high public debt in SSA. Again, the authors included the threshold at which political institutions can cause economic institutions to have a desired impact on public debt in SSA.