Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis

Melkamu Welde Geleta

doi:doi:10.11648/j.eco.20211003.11

| Peer-Reviewed

Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis

Melkamu Welde Geleta

Published in Economics (Volume 10, Issue 3)

Received: 22 May 2021 Accepted: 10 July 2021 Published: 21 July 2021

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Most studies made on the effect of public debt on economic growth especially in high or middle-income economies separately or in both argues that debt has positive effect at early stage and then negative after some threshold beyond which it deteriorate economy (Laffer curve effect). In less developed countries like sub Saharan African (SSA) countries public debt is considered as a potential remedy to finance budget deficit. However, its role in economic growth is debatable over a long period. This depends on the way they utilize and inject it in the economy. Thus, this study aimed at investigating the impact of public debt on economic growth (real per-capita GDP) using panel data of 13 years (2005-2018) in 18 sub–Saharan African countries. The two-step system Generalized Method of Moment (2SSYS-GMM) method is employed and considering the two-way linkage between the two variables simultaneous equation model of two equations is used to identify the effect of public debt on economic growth. The results indicate that a negative and statistically significant bidirectional relationship between public debt and economic growth of the SSA countries considered in the panel. However, it doesn’t justify the Laffer curve (non-linear) effect of debt on economic growth. The result also shows that gross national saving, export and broad money has significantly positive effect on economic growth. Thus, the study recommends using debt fund in more productive ways to support the economy. Further, the countries should focus more on national savings mobilization, export promotion and improve money supply management than looking for more debt.

Published in	Economics (Volume 10, Issue 3)
DOI	10.11648/j.eco.20211003.11
Page(s)	68-78
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Public Debt, Economic Growth, System GMM, Simultaneous Equation Model

References

[1]	Arellano, M., and S. Bond. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58: 277–297.
[2]	Blundell, R., and S. Bond. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87: 115–143.
[3]	Buchanan, J. M. (1958), Public Principles of the Public Debt, Homewood, Illinois.
[4]	Burhanudin, M. D. A., Muda, R., Nathan, S. B. S., & Arshad, R. (2017). Real effects of government debt on sustainable economic growth in Malaysia. Journal of International Studies, 10 (3), 161–172. doi: 10.14254/2071-8330.2017/10-3/12.
[5]	César Calderón and J. Rodrigo Fuentes 2013. Government Debt and Economic Growth: Inter-American Development Bank Fiscal and Municipal Management Division. IDB WORKING PAPER SERIES No. IDB-WP-424.
[6]	Choi, In. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance. 20. 249-272. 10.1016/S0261-5606(00)00048-6.
[7]	Claessens, S., E. Detragiache, R. Kanbur, and P. Wickham (1996). ‘Analytical Aspects of the Debt Problems of Heavily Indebted Poor Countries’. Paper presented to IMF/World Bank seminar in December. Washington, DC: World Bank.
[8]	Cohen, D. (1993), “Low Investment and Large LDC Debt in the 1980s,” American Economic Review, Vol. 83 (3), pp. 437–49.
[9]	Cristina Checherita And Philipp Rother 2010. The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for The Euro Area. Working Paper Series, No 1237 / August 2010.
[10]	Elbadawi, I. A., Ndulu, B. J., Ndung’u, N. (1997), Debt overhang and economic growth in Sub-Saharan Africa. In: Iqbal, Z., Kanbur, R., editors. External Finance for Low-income Countries. Washington, DC: International Monetary Fund.
[11]	Enrique R. Casares (2015). ‘A relationship between external public debt and economic growth’ Universidad Aut´onoma Metropolitana-Azcapotzalco: Estudios Econ´omicos, vol. 30, n´um. 2, julio-diciembre 2015, p´aginas 219-243.
[12]	Gómez-Puig, M., & Sosvilla-Rivero, S. (2017). Heterogeneity in the debt-growth nexus: Evidence from EMU countries. International Review of Economics and Finance, 51, 470–486. doi: 10.1016/j.iref.2017.07.008.
[13]	Greene WH (2003). Econometric Analysis. Prentice Hall, 5th edition.
[14]	Gujarati, D. N. (2003) Basic Econometrics. 4th Edition, McGraw-Hill, New York.
[15]	Henningsen, Arne & Hamann, Jeff. (2007). systemfit: A Package for Estimating Systems of Simultaneous Equations in R. Journal of Statistical Software. 23. 10.18637/jss.v023.i04.
[16]	Krugman, Paul (1988). “Market-Based debt Reduction Schemes,” NBER working Paper, 2587, Cambridge.
[17]	Lee, S., Park, H., Seo, M. H., & Shin, Y. (2017). Testing for a debt-threshold effect on output growth. Fiscal Studies, 38 (4), 701–717. doi: 10.1111/1475-5890.12134.
[18]	Maitra, B. (2019). Macroeconomic impact of public debt and Foreign Aid in Sri Lanka. Journal of Policy Modeling, 41 (2), 372–394. doi: 10.1016/j.jpolmod.2019.03.002.
[19]	Markus Eberhardt and Andrea F. Presbitero 2015. Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics. journal homepage: www.elsevier.com/ locate/j i e. INEC-02861; No of Pages 14.
[20]	Meade, J. E. (1958), “Is the National Debt a Burden?” Oxford Economic Papers, New Series, Vol. 10 (2), pp. 163-183.
[21]	Mensah, Lord & Bokpin, Godfred & Boachie Yiadom, Eric. (2018), External Debts, Institutions and Growth in SSA. Journal of African Business. 19. 1-16. 10.1080/15228916.2018.1452466.
[22]	Mhlab, N., & Phiri, A. (2019). Is public debt harmful towards economic growth? New evidence from South Africa. Cogent Economics and Finance, 7 (1). doi: 10.1080/23322039.2019.1603653.
[23]	Modigliani, F. (1961), “Long-Run Implications of Alternative Fiscal Policies and the Burden of the National Debt”, Economic Journal, 71 (284), pp. 730-755.
[24]	N. M. Gatawa, Akinola Abdulgafar, Muftau O. Olarinde (2017). ‘Impact of Money Supply and Inflation on Economic Growth in Nigeria’ (1973-2013): IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925. Volume 8, Issue 3 Ver. IV (May - June 2017), PP 26-37.
[25]	Omodero, Cordelia. (2019). Effect of Money Supply on Economic Growth: A Comparative Study of Nigeria and Ghana. International Journal of Social Science Studies. 7. 16. 10.11114/ijsss.v7i3.4137.
[26]	Ramakrishna G. (2002) External Debt of Ethiopia: An Empirical Analysis of Debt and Growth. Journal of Business and Public Affairs.
[27]	Reinhart, C. M. and K. S. Rogoff (2009), “The Aftermath of Financial Crisis”, American Economic Review, Vol. 99 (2), pp. 466-472.
[28]	Reinhart, C. M., Reinhart, V., & Rogoff, K. (2015). Dealing with debt. Journal of International Economics, 96 (S1), S 43–55. doi: 10.1016/j.jinteco.2014.11.001.
[29]	Robin K. and Simon P. (2019), IMF Working Papers. “Capital Flow Data – A Guide for Empirical Analysis and Real-Time Tracking”.
[30]	Saint-Paul, G. (1992), “Fiscal policy in an Endogenous Growth Model”, Quarterly Journal of Economics, No. 107, pp. 1243-1259.
[31]	Sami Al Kharusi and Mbah Stella Ada 2015. External Debt and Economic Growth: The Case of Emerging Economy. Journal of Economic Integration. Vol. 33 No. 1, March 2018, 1141~1157 http://dx.doi.org/10.11130/jei.2018.33.1.1141.
[32]	Samia O. B. and Hanen O., 2017. Macroeconomic determinants of public debt growth: A case study for Tunisia, Theoretical and Applied Economics. Volume XXIV (2017), No. 4 (613), Winter, pp. 161-168.
[33]	Schmidt P. (1990). “Three-Stage Least Squares with Different Instruments for Different Equations.” Journal of Econometrics, 43, 389–394.
[34]	Senadza, Bernardin; Fiagbe, Agbemavor Korsi; Quartey, Peter (2018): The effect of external debt on economic growth in Sub-Saharan Africa, International Journal of Business and Economic Sciences Applied Research (IJBESAR), ISSN 2408-0101, Eastern Macedonia and Thrace Institute of Technology, Kavala, Vol. 11, Iss. 1, pp. 61-69.
[35]	Stephen G. Cecchetti, M S Mohanty and Zampolli F. (2011). ‘The real effects of debt’: BIS Working papers No 352.
[36]	Were, M. (2001). The Impact of External Debt on Economic Growth in Kenya: An Empirical Analysis, Discussion Paper, 116, WIDER, October.
[37]	World Bank. International Debt Statistics 2019. Washington, DC: World Bank. doi: 10.1596/978-1-4648-1461-7. License: Creative Commons Attribution CC BY 3.0 IGO.
[38]	Zouhaier H. & Fatma M. (2018). ‘Debt and Economic Growth’ International Journal of Economics and Financial Issues’ Vol. 4, No. 2, 2014, pp. 440-448; ISSN: 2146-4138: www.econjournals.com.

Cite This Article

Plain Text BibTeX RIS

APA Style

Melkamu Welde Geleta. (2021). Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics, 10(3), 68-78. https://doi.org/10.11648/j.eco.20211003.11

Copy | Download

ACS Style

Melkamu Welde Geleta. Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics. 2021, 10(3), 68-78. doi: 10.11648/j.eco.20211003.11

Copy | Download

AMA Style

Melkamu Welde Geleta. Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics. 2021;10(3):68-78. doi: 10.11648/j.eco.20211003.11

Copy | Download

@article{10.11648/j.eco.20211003.11,
  author = {Melkamu Welde Geleta},
  title = {Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis},
  journal = {Economics},
  volume = {10},
  number = {3},
  pages = {68-78},
  doi = {10.11648/j.eco.20211003.11},
  url = {https://doi.org/10.11648/j.eco.20211003.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20211003.11},
  abstract = {Most studies made on the effect of public debt on economic growth especially in high or middle-income economies separately or in both argues that debt has positive effect at early stage and then negative after some threshold beyond which it deteriorate economy (Laffer curve effect). In less developed countries like sub Saharan African (SSA) countries public debt is considered as a potential remedy to finance budget deficit. However, its role in economic growth is debatable over a long period. This depends on the way they utilize and inject it in the economy. Thus, this study aimed at investigating the impact of public debt on economic growth (real per-capita GDP) using panel data of 13 years (2005-2018) in 18 sub–Saharan African countries. The two-step system Generalized Method of Moment (2SSYS-GMM) method is employed and considering the two-way linkage between the two variables simultaneous equation model of two equations is used to identify the effect of public debt on economic growth. The results indicate that a negative and statistically significant bidirectional relationship between public debt and economic growth of the SSA countries considered in the panel. However, it doesn’t justify the Laffer curve (non-linear) effect of debt on economic growth. The result also shows that gross national saving, export and broad money has significantly positive effect on economic growth. Thus, the study recommends using debt fund in more productive ways to support the economy. Further, the countries should focus more on national savings mobilization, export promotion and improve money supply management than looking for more debt.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis
AU  - Melkamu Welde Geleta
Y1  - 2021/07/21
PY  - 2021
N1  - https://doi.org/10.11648/j.eco.20211003.11
DO  - 10.11648/j.eco.20211003.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 68
EP  - 78
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20211003.11
AB  - Most studies made on the effect of public debt on economic growth especially in high or middle-income economies separately or in both argues that debt has positive effect at early stage and then negative after some threshold beyond which it deteriorate economy (Laffer curve effect). In less developed countries like sub Saharan African (SSA) countries public debt is considered as a potential remedy to finance budget deficit. However, its role in economic growth is debatable over a long period. This depends on the way they utilize and inject it in the economy. Thus, this study aimed at investigating the impact of public debt on economic growth (real per-capita GDP) using panel data of 13 years (2005-2018) in 18 sub–Saharan African countries. The two-step system Generalized Method of Moment (2SSYS-GMM) method is employed and considering the two-way linkage between the two variables simultaneous equation model of two equations is used to identify the effect of public debt on economic growth. The results indicate that a negative and statistically significant bidirectional relationship between public debt and economic growth of the SSA countries considered in the panel. However, it doesn’t justify the Laffer curve (non-linear) effect of debt on economic growth. The result also shows that gross national saving, export and broad money has significantly positive effect on economic growth. Thus, the study recommends using debt fund in more productive ways to support the economy. Further, the countries should focus more on national savings mobilization, export promotion and improve money supply management than looking for more debt.
VL  - 10
IS  - 3
ER  -

Copy | Download

Author Information

Melkamu Welde Geleta

Department of Economics, College of Business and Economics, Wollega University, Nekemte, Ethiopia

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Melkamu Welde Geleta. (2021). Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics, 10(3), 68-78. https://doi.org/10.11648/j.eco.20211003.11

Copy | Download

ACS Style

Melkamu Welde Geleta. Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics. 2021, 10(3), 68-78. doi: 10.11648/j.eco.20211003.11

Copy | Download

AMA Style

Melkamu Welde Geleta. Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis. Economics. 2021;10(3):68-78. doi: 10.11648/j.eco.20211003.11

Copy | Download

@article{10.11648/j.eco.20211003.11,
  author = {Melkamu Welde Geleta},
  title = {Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis},
  journal = {Economics},
  volume = {10},
  number = {3},
  pages = {68-78},
  doi = {10.11648/j.eco.20211003.11},
  url = {https://doi.org/10.11648/j.eco.20211003.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20211003.11},
  abstract = {Most studies made on the effect of public debt on economic growth especially in high or middle-income economies separately or in both argues that debt has positive effect at early stage and then negative after some threshold beyond which it deteriorate economy (Laffer curve effect). In less developed countries like sub Saharan African (SSA) countries public debt is considered as a potential remedy to finance budget deficit. However, its role in economic growth is debatable over a long period. This depends on the way they utilize and inject it in the economy. Thus, this study aimed at investigating the impact of public debt on economic growth (real per-capita GDP) using panel data of 13 years (2005-2018) in 18 sub–Saharan African countries. The two-step system Generalized Method of Moment (2SSYS-GMM) method is employed and considering the two-way linkage between the two variables simultaneous equation model of two equations is used to identify the effect of public debt on economic growth. The results indicate that a negative and statistically significant bidirectional relationship between public debt and economic growth of the SSA countries considered in the panel. However, it doesn’t justify the Laffer curve (non-linear) effect of debt on economic growth. The result also shows that gross national saving, export and broad money has significantly positive effect on economic growth. Thus, the study recommends using debt fund in more productive ways to support the economy. Further, the countries should focus more on national savings mobilization, export promotion and improve money supply management than looking for more debt.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Public Debt and Economic Growth in Sub-saharan African Countries: A Panel Data Analysis
AU  - Melkamu Welde Geleta
Y1  - 2021/07/21
PY  - 2021
N1  - https://doi.org/10.11648/j.eco.20211003.11
DO  - 10.11648/j.eco.20211003.11
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 68
EP  - 78
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20211003.11
AB  - Most studies made on the effect of public debt on economic growth especially in high or middle-income economies separately or in both argues that debt has positive effect at early stage and then negative after some threshold beyond which it deteriorate economy (Laffer curve effect). In less developed countries like sub Saharan African (SSA) countries public debt is considered as a potential remedy to finance budget deficit. However, its role in economic growth is debatable over a long period. This depends on the way they utilize and inject it in the economy. Thus, this study aimed at investigating the impact of public debt on economic growth (real per-capita GDP) using panel data of 13 years (2005-2018) in 18 sub–Saharan African countries. The two-step system Generalized Method of Moment (2SSYS-GMM) method is employed and considering the two-way linkage between the two variables simultaneous equation model of two equations is used to identify the effect of public debt on economic growth. The results indicate that a negative and statistically significant bidirectional relationship between public debt and economic growth of the SSA countries considered in the panel. However, it doesn’t justify the Laffer curve (non-linear) effect of debt on economic growth. The result also shows that gross national saving, export and broad money has significantly positive effect on economic growth. Thus, the study recommends using debt fund in more productive ways to support the economy. Further, the countries should focus more on national savings mobilization, export promotion and improve money supply management than looking for more debt.
VL  - 10
IS  - 3
ER  -

Copy | Download