Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264223 
Year of Publication: 
2016
Series/Report no.: 
WAMI Occasional Paper Series No. 12
Publisher: 
West African Monetary Institute (WAMI), Accra
Abstract: 
This study analyzes trends and investigates the relationship between external debt and economic growth in the WAMZ using descriptive trend analysis and panel data analysis. The trend and descriptive analysis assessed the behavior of external debt and economic growth while the empirical analyses employed panel data regression in which a fixed effect model was estimated after the implementation of the Hausman test to verify its appropriateness over the random effect model. The fixed effect model and the dynamic version show that the relationship between external debt and growth in the WAMZ is non-linear "Laffer curve" shaped, confirming the debt overhang theory that the accumulation of external debt beyond a certain threshold adversely affects economic growth. The results also confirm the crowding-out effect of rising external debt stock as the co-efficient of external debt service was negative and statistically significant, indicating that rising debt service associated with high levels of external debt stock limits the use of limited resources (revenue) from being channeled to productive public investments that would accelerate economic growth.
Subjects: 
External Debt
Economic Growth
Panel Data Analysis
WAMZ
JEL: 
E60
B22
C33
R23
Document Type: 
Research Report

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