Abstract
This study aimed to determine the channels through which external debt transmits its impact on economic growth in sub-Saharan African (SSA) countries. To this end, panel data comprising 30 SSA countries were investigated for the period 1985–2019, using the system generalized method of moments (GMM) estimation technique. The study identified public investment, private investment and total factor productivity as channels transmitting the non-linear effect from external debt to economic growth. Furthermore, the interest rate was also confirmed as a channel but with a direct effect. Contrariwise, the estimates indicated that savings are not a channel of transmission from external debt to economic growth in SSA. These findings call for urgent action from SSA countries to reduce their external debt stocks and implement alternative macroeconomic non-debt strategies to improve the identified channels to counteract the negative effect of high external debt on them.
Highlights
External Debt and Economic Growth: Over the years, the relationship between external debt and economic growth has remained a significant issue widely discussed in the macro-economic literature (EdetNkpubre 2013)
That of its squared term is negative. While the former is statistically significant, at 1%, the latter is significant, at 5%. These results indicate an inverted U-shaped relationship between external debt and private investment, which suggests that the non-linear effect of external debt on economic growth is transmitted through private investment
The results indicate that private investment, public investment and total factor productivity (TFP) reported in columns (2), (3) and (4), respectively, transmit non-linear impact from external debt servicing to economic growth
Summary
External Debt and Economic Growth: Over the years, the relationship between external debt and economic growth has remained a significant issue widely discussed in the macro-economic literature (EdetNkpubre 2013) It has generated heated macro-economic debates between two major but opposing economic thought schools: the Keynesians and the neo-classical economists. The former posits that an increase in debt impacts growth positively and is necessary for economic recovery. Contrariwise, neo-classical economists equate debt to a future tax and focus on the adverse effects of debt overload Their view is corroborated by another strand of literature which suggests that external debt negatively affects economic growth
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
