Modeling, Estimation and Analysis of the Interaction between Public Debt and Economic Growth in Cameroon

Abstract

In this paper, we intended to model, to estimate and to analyze the relation between the debt and the economic growth in Cameroon in order to value what could be the fallouts of an annulment of the debt and how to pull profit of it. Indeed, theoretically the debt certainly constitutes for a country an opportunity to increase its production and to face its temporary difficulties. But it can also present some inconveniences for the growth and the investment; this generally, when it is located beyond a certain threshold identified by the curve of Laffer. These negative effects appear through the virtual burden of the debt, the constraint of liquidity and the uncertainties that it can generate. For the realization of our survey, we had resort to a VAR modeling founds on a neoclassical growth model to which we added the variables of opening and the debt. After estimations and analysis on Cameroon’s data, the gotten results invalidate the hypothesis of the virtual burden of the debt and confirm the one of the eviction of the investment due to the service of the debt. Besides, the level raised of the Cameroon’s external debt would be owed both to the crisis of 1987 and to the devaluation of the CFA Franc in 1994. In fact, the stock of the debt has a positive impact on the economic growth in Cameroon, but doesn't influence the investment meaningfully; it translates a use of the debt at ends of consumption that could compromise the future repayment of the debt. A debt relief would be beneficial if it drags a considerable and immediate reduction of the service of the debt, and facilitate the access to new loans. These loans should be used for the financing of the investment in order to guarantee a sustainable growth and to facilitate the repayment of the debt.