Public debt, institutional quality and growth in sub-Saharan Africa: a threshold analysis

Abstract

ABSTRACT Using data for 44 sub-Saharan African countries, this study analyzes the effect of public debt on economic growth and assesses whether institutional quality matters for this effect. The results indicate that, while an increase in public debt has a negative impact on economic growth, this effect is dampened when there is an increase in the quality of institutions as captured by an anti-corruption perception indicator or a government effectiveness indicator. Further, the findings indicate that there is a level of institutional quality above which the effect of an increase in public debt on growth is positive. Ergo, a decline in corruption as well as the perception effect that it engenders, and an improvement in the quality of policymaking should eliminate some of the inefficiencies characteristic of governments in the sub-region and facilitate a positive impact of debt on growth.