External debt and economic growth in selected African economies: A heterogeneous dynamic panel data analysis

Abstract

The nexus between external debt and economic growth of Ghana, Kenya, Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021 was examined in this study.  For analysis, the Pooled Mean Group Heterogeneous Dynamic Panel Data Approach and the Toda Yamamoto Granger causality tests technique were deployed. The results indicated that external debt had a negative effect on economic growth. Moreover, debt service exerted a positive impact on economic growth. The findings of the causality tests showed that there is no causal link between external debt and economic growth. Furthermore, no causal link was established between debt service and economic growth. As a result, the study suggests that the capacity of these economies in terms of revenue generation and debt servicing should be reinforced by their governments through the channelling of external debt into long-term productive investments for the realization of positive economic growth. Moreover, the policies on debt servicing in these economies should be sustained since it is yielding the desired results. Furthermore, thoroughly assessed projects of high significance should be the only yardstick for the contraction of foreign loans in these economies. Also, the policy objectives of external debt, debt service and economic growth can be pursued separately from one another in this group of economies in Africa.