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The External Debt-Servicing Constraint and Public Expenditure Composition: Evidence from African Economies

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Fosu, Augustin Kwasi

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Abstract

The paper explores the impact of a binding external debt-servicing constraint on the sectoral composition of government expenditures in the economies of Africa, where this constraint has traditionally been most prevalent. Applying seemingly unrelated regression (SUR) to 1975-94 five-year panel data for 35 countries, the paper finds that the implied debt service burden adversely affects the share of public spending in the social sector, with similar impacts on education and health. Despite evidence that such a burden might also negatively influence public investment, the deleterious implications of debt servicing appear to be primarily a social-sector phenomenon. The partial elasticity on the sector's expenditure share is estimated at 1.5, which is by far the highest among all the explanatory variables considered, including external aid, whose estimated effect on the social sector is positive but with an elasticity of only 0.2. Aid also positively affects public investment with a similar elasticity of 0.2. Constraint on the executive exercises significant positive and negative impacts, respectively, on ...

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Publisher Info
Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number UNU-WIDER Research Paper RP2007/36.

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Length: 22 pages
Date of creation: 2007
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Handle: RePEc:unu:wpaper:rp2007-36

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Related research
Keywords: external debt servicing; public expenditure composition; seemingly unrelated regression; African economies;

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  19. Mahdavi, Saeid, 2004. "Shifts in the Composition of Government Spending in Response to External Debt Burden," World Development, Elsevier, vol. 32(7), pages 1139-1157, July. [Downloadable!] (restricted)
  20. Dao, Minh Quang, 1995. "Determinants of Government Expenditures: New Evidence from Disaggregative Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 67-76, February.
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