Public debt, Chinese loans and optimal exploration–extraction in Africa

Based on an optimal oil exploration–extraction model with public debts and Chinese loans, we examine analytically and empirically two theoretical propositions pertaining to the impacts of public debt and Chinese loan on economic and physical scarcity/abundance in African economies. First, despite a baseline independent relationship between public debt and optimal operations, the level of public debts can have an adverse effect on the abundance measures if it breached the debt-sustainability threshold. Second, with alternative Chinese loans, the effect on optimal exploration–extraction is analytically ambiguous. To examine both propositions, we estimate endogenous binary-treatment regression models based on a panel data of 18 African economies over 2000–17. We find empirical support with regards to the adverse effect of public debt sustainability. Further, we find positive effect from Chinese loans to both abundance measures, indicating that the combined marginal benefits outweigh the marginal costs associated with the resource-collateralized funding nature of these loans.