EFFECTS OF CONCESSIONAL DEBT ON ECONOMIC DEVELOPMENT: A MULTILATERAL AND BILATERAL PERSPECTIVE ON THE WEST AFRICAN MONETARY ZONE

Abstract

Studies on the contribution of concessional debt to economic development are sketchy. The paucity of empirical studies on this subject is even more glaring in the context of the English-speaking West African countries. Bilateral and multilateral aid donors have intensified the flow of official assistance to the developing countries of the world with the aim to bridge the developmental gap between the less developed countries and the industrialized countries of the world. The question that often arises is whether such aids have yielded the desired results among the recipient countries. Against this backdrop, we examined the effect of concessional debt on the economic development in the West African Monetary Zone (WAMZ) using cross-sectional data from 1975-2014. The panel cointegration and panel unit root tests were employed to test for long-run relationship and stationarity of the series respectively. Our model was analysed with both fixed and random effect panel regression while the Hausman test be used to determine the best and appropriate choice between the two. Our findings reveal that multilateral and bilateral concessional debts have significant positive effect on standard of living in the West African Monetary Zone. The panel cointegration test also indicates that there is no long-run relationship between concessional debt and per capita income. We conclude that inflow of concessional aid from multilateral and bilateral donors has had remarkable influence on the standard of living in the region. We recommend that concessional aid to the less developed countries be intensified. However, recipient countries should have a credible external borrowing guideline scribed in their legislation to check against excessive borrowing and also ensure that aid received is used for the intended (developmental) purposes. External institutions and aid agencies should also be involved in the entire aid administration with aim of ensuring that aid is extended based on need, not political ties. JEL: A10; B20; C01 Article visualizations: