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

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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

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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), 2024. Published by Science Publishing Group

Keywords

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

References

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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

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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

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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

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@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}
}

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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  -

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Author Information

Melkamu Welde Geleta

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

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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

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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

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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

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@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