Effects of the agricultural food price volatility on external debt in Sub-Saharan Africa: does climate change matter?

In regions where agriculture serves as a cornerstone for employment and export revenue, increased volatility of food prices, coupled with the rising occurrence of climate shocks (such as droughts, floods, and heat waves), has driven a notable increase in external debt. While previous research has investigated the relationships between climate, agriculture, and debt separately, limited attention has been given to the direct influence of agricultural price volatility on external debt and the role of climate shocks as a transmission mechanism. Our study seeks to assess the direct effect of agricultural price volatility on external debt and to examine the mediating role of climate change in this relationship. From a panel of 45 countries in sub-Saharan Africa (SSA) over the period 1995-2020, we mobilize a country-time fixed effects model estimated by the Two-Way Fixed Effects (TWFE) method. Our results indicate that a 1% increase in food price volatility leads to an increase in external debt of 0.102 points. The mediation analysis confirms that climate change is exacerbating the effect of volatile agricultural prices on external debt. To limit the impact of agricultural price volatility and climate risks on debt, it is essential to stabilize agricultural markets, integrate climate risks into economic planning, develop adaptive social safety nets, to diversify the economy and energy, mobilize innovative financing and develop technological innovations in the agricultural sector.