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The Impact of External Debt on Economic Growth in Sub-Saharan Africa

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  • Muhia John Gachunga
  • Yasin Kuso

Abstract

t In theory the underlying logic entails that, a country should borrow as long as the capital thus acquired produces a rate of return that is higher than the cost of the foreign borrowing. In that event, the economy of the borrowing country will result in increased capacity coupled with expanding output via the aid of foreign savings. With countries in Sub-Saharan Africa adopting an economic development strategy that significantly relies on external financing, the study sets out with the aim to uncover the existent relationship between external debt burden and economic growth for the period 1990 to 2016 in 38 selected Sub-Saharan countries. To do this, panel data econometric techniques of Generalized Method of Moments was employed to evaluate the relationship. The results from the generalized method of moment indicated that, economies of Sub-Saharan Africa are negatively affected by external debt. Also, external debt was found to be more deleterious to middle income economies compared to their counterparts low income economies.

Suggested Citation

  • Muhia John Gachunga & Yasin Kuso, 2018. "The Impact of External Debt on Economic Growth in Sub-Saharan Africa," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(4), pages 57-63, December.
    • Handle: RePEc:khe:scajes:v:4:y:2018:i:4:p:57-63
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    References listed on IDEAS

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    More about this item

    Keywords

    External debt; economic growth; generalized method of moment; Sub-Saharan Africa; foreign savings;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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