A LONGITUDINAL ECONOMETRIC ANALYSIS OF THE EFFECT OF DEBT BURDEN ON INVESTMENT AND GROWTH IN SUB-SAHARAN AFRICA

Author: NSONWU, Modestus Chidi

Abstract

This thesis on Longitudinal Econometric Analysis of the effect of Debt Burden on Investment and Growth was carried out on fifteen indebted countries in sub-Saharan Africa over a time period of sixteen years (1998 – 2013). Longitudinal data approach was used since the research involved both time series and cross sectional data. Secondary data obtained from World Bank Development Indicators, World Bank, International Debt Statistics, Central Banks of the Countries and Debt Management Bureaus in the selected countries were used in the research. STATA package version 11 was used in the data analysis and the results show that total debt has a significant and negative effect on the economic growth of sub-Saharan African countries, debt service has a significant and negative effect on economic growth of sub-Saharan African countries, Total debt has a significant and negative effect on investment of sub-Saharan African countries and debt service has a significant and negative effect on Investment in sub-Saharan African countries. A unit increase in debt service resulted in approximately 19.839 unit decrease in GDP and 3.296 unit decrease in investment in the SSA countries. Also a unit increase in total debt resulted in 7.909 unit decrease in GDP and 0.590 unit decrease in investment in the SSA countries. The implication of these results are that the debt burden from the findings distorted human capital and infrastructural development and economic advancement in the sub-Saharan African countries due to debt overhang on investment and crowding out effect on economic growth. The main recommendation from the findings of this study is that SSA countries should not continue to procure public debts as such debts actually depress growth and investment. Loans should be applied on investment in infrastructures that promotes productivity and human capital development. The study also recommends that economies of sub Saharan African countries should apply loans only on beneficial capital investments capable of liquidating itself rather than spend it on recurrent expenditure. Only external loans with favourable terms and conditions should be sort for by the countries to avoid excessive debt burden on the economies.

Supervisors: Prof. C. O. Orubu Dr. M.D. Imobighe