External Debt And Economic Growth In Sub-Saharan Africa: Exploring The Impact Of External Debt Shock And The Interactive Effect Of Institutional Quality
DINKA’A Adrian Yebit, Godwin Imo IBE, KESUH Jude Thaddeus, Njie Immaculate LUM, Aseh Victor TEMBENG, Josaphat Uchechukwu Joe ONWUMERE
DOI: 10.5110/77. 1023 Page: 30-53 Vol: 18 Issue: 08 Year: 2023
External debt remains a severe issue for many Sub-Saharan African (SSA) countries. This study investigates external debt’s effect on the economic growth of SSA from 1991 to 2021. Panel data of 20 SSA countries obtained from the World Bank database was analysed using the panel Autoregressive Distributed Lag (ARDL) model and the Vector Error Correction (VEC) Impulse Response Function (IRF). The findings revealed that external debt negatively and significantly affects economic growth in the long run. It also reveals a significantly negative impact of external debt service payment. However, the moderating role of institutional quality is positively significant, with substantial institutional quality mitigating the negative effect of external debt on economic growth. External debt shock’s effect in the short run is positive and negative but insignificant in the long run. The study recommends implementing prudent debt management strategies, prioritising productive investments, diversifying revenue sources, and building more vital institutions.
Contribution/Originality: This study stands unique by investigating the interactive effect of external debt stock and institutional quality on economic growth and the impact of external debt shock. This study sheds light on the nexus by blending the panel ARDL model and the VEC Impulse Response Function (IRF).
Keywords: External Debts, Economic Growth, External Debt Shocks, Institutional Quality, ARDL model, Impulse Response Function
Received: 12 September 2023
Accepted: 27 September 2023
Published: 05 October 2023