Non-Linear Effect of External Debt on Economic Growth: Evidence From Sub-Saharan African Countries

A. S. Hassan, D. F. Meyer

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

The non-linear impact of external debt on economic growth has not been adequately investigated for sub-Saharan African (SSA) countries, as previous studies paid little attention to the region. Moreover, previous panel studies on the subject did not consider cross-section dependence in their analysis. Hence, this study aimed to fill this gap in the literature by investigating 30 SSA countries’ panel data from 1985 to 2018 through the augmented mean group (AMG), and common correlated effects mean group (CCEMG) estimators. The study results indicate that external debt exerts a non-linear impact on economic growth in SSA countries and that the relationship between the two variables follows an inverted U-shaped pattern. Furthermore, thresholds of external debt beyond which it depresses economic growth in the region were computed at 44–53% of GDP and 196–232% of export. These results call for adopting a pragmatic approach on the part of SSA governments towards reducing their external debt burden, by way of efficient use of the already accumulated debt. The external debt thresholds should also be embedded in their external debt management strategy to reduce the negative impact of high external debt.

Original languageEnglish
Pages (from-to)447-460
Number of pages14
JournalInternational Journal of Economics and Management
Volume14
Issue number3
Publication statusPublished - Dec 2020

Keywords

  • augmented mean group
  • economic growth
  • external debt
  • non-linear
  • sub-Saharan African countries

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance (all)
  • Strategy and Management

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