External Debt, Governance, and Economic Growth: The African Case

Abstract

This paper is motivated by the Direct Effect of Debt Hypothesis (DEDH), and based on empirical facts, develops a theoretical model that explores the impact of external debt on economic growth by taking into consideration exports and the role of institutions or quality of governance. Using country averages from 2005 to 2017 and data set for 32 SSA countries, OLS technique is used to estimate cross-sectional effect of external debt on governance and economic growth. The findings indicate that exports and quality of governance stimulate output positively, while external debt burden has adverse effect on economic growth.