Infrastructure Development in West Africa: What Is the Role of Concessionary External Debt?

Abstract

Using two key components of Africa Infrastructure Index—energy and capital—we ask the data whether and how concessionary public external debt may have impacted infrastructure outcomes in West Africa. The study relies on the fixed effect panel data model and covers the period of 1995–2018 for 14 West African Economies. The key results are as follows: (i) we found fairly broad and robust support for a positive overall contribution of “concessionary” external debt to infrastructure endowment and economic development; (ii) the sign of the interactive factor (debt/institutions) turned out to be negative and significant—suggesting that the quality of institution is a key determinant of how external debt impact infrastructure outcome and development for countries in West Africa; (iii) external debt is found to be broadly higher in regressions that exclude investment implying that the primary contribution of external debt has been through investment efficiency. The policy import of the latter is that reduction in binding constraints to investments along with institutional reforms such as better control of corruption and improvement in government effectiveness would improve the positive contribution of concessionary external debt to infrastructure outcome and economic development in West Africa.