External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis

Abu Bakarr Tarawalie; Talatu Jalloh

doi:doi:10.11648/j.ijber.20211005.13

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External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis

Abu Bakarr Tarawalie, Talatu Jalloh

Published in International Journal of Business and Economics Research (Volume 10, Issue 5)

Received: 22 September 2021 Accepted: 8 October 2021 Published: 15 October 2021

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Abstract

Literature on the debt-growth nexus postulates that external debt is viewed as capital that closes the financing gap, boost investment and promote growth. Against this background, and given the low revenue mobilization drive, the ECOWAS Member States resort to external borrowing with a view to complement domestic revenue and enhance their ability to finance large infrastructural projects and boost economic growth. However, external debt accumulation has not translated into high growth in the ECOWAS Member States. Thus, the paper investigates the impact of external debt on economic growth in the ECOWAS countries, and determines the optimal threshold level of external debt that promotes growth. The study utilizes panel data for 15 countries spanning from 2000 to 2019, and employs four estimation techniques including the Pooled Ordinary Least Squares (POLS), Fixed Effect Model (FEM), Random Effect Model (REM) and Panel Corrected Standard Errors (PCSE) techniques. The empirical results suggest that external debt (ED), Openness to trade (Opn) and Control of Corruption (CoC) are the main determinants of economic growth in the ECOWAS countries. Specifically, openness has a positive effect on growth, while both external debt and control of corruption have negative impact on growth. Furthermore, the study reveals evidence of a nonlinear relationship between external debt and real GDP, and confirms that the optimal threshold level of external debt in the ECOWAS countries is 111%. Intuitively, the result indicates that any increase in external debt above 111% will reduce growth in the ECOWAS countries by 0.0001% while below the threshold level, economic growth will improve by 0.0222%. The policy implication is that, governments of the ECOWAS countries should ensure that, external debt are utilized in growth enhancing sectors, with a view to boost growth. Also, governments should develop debt management strategic policies, with a view to keep debt levels within sustainable limits.

Published in	International Journal of Business and Economics Research (Volume 10, Issue 5)
DOI	10.11648/j.ijber.20211005.13
Page(s)	178-186
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), 2021. Published by Science Publishing Group

Keywords

ECOWAS Countries, External Debt, Economic Growth, Panel Data Analysis

References

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APA Style

Abu Bakarr Tarawalie, Talatu Jalloh. (2021). External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. International Journal of Business and Economics Research, 10(5), 178-186. https://doi.org/10.11648/j.ijber.20211005.13

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ACS Style

Abu Bakarr Tarawalie; Talatu Jalloh. External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. Int. J. Bus. Econ. Res. 2021, 10(5), 178-186. doi: 10.11648/j.ijber.20211005.13

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AMA Style

Abu Bakarr Tarawalie, Talatu Jalloh. External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. Int J Bus Econ Res. 2021;10(5):178-186. doi: 10.11648/j.ijber.20211005.13

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@article{10.11648/j.ijber.20211005.13,
  author = {Abu Bakarr Tarawalie and Talatu Jalloh},
  title = {External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis},
  journal = {International Journal of Business and Economics Research},
  volume = {10},
  number = {5},
  pages = {178-186},
  doi = {10.11648/j.ijber.20211005.13},
  url = {https://doi.org/10.11648/j.ijber.20211005.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20211005.13},
  abstract = {Literature on the debt-growth nexus postulates that external debt is viewed as capital that closes the financing gap, boost investment and promote growth. Against this background, and given the low revenue mobilization drive, the ECOWAS Member States resort to external borrowing with a view to complement domestic revenue and enhance their ability to finance large infrastructural projects and boost economic growth. However, external debt accumulation has not translated into high growth in the ECOWAS Member States. Thus, the paper investigates the impact of external debt on economic growth in the ECOWAS countries, and determines the optimal threshold level of external debt that promotes growth. The study utilizes panel data for 15 countries spanning from 2000 to 2019, and employs four estimation techniques including the Pooled Ordinary Least Squares (POLS), Fixed Effect Model (FEM), Random Effect Model (REM) and Panel Corrected Standard Errors (PCSE) techniques. The empirical results suggest that external debt (ED), Openness to trade (Opn) and Control of Corruption (CoC) are the main determinants of economic growth in the ECOWAS countries. Specifically, openness has a positive effect on growth, while both external debt and control of corruption have negative impact on growth. Furthermore, the study reveals evidence of a nonlinear relationship between external debt and real GDP, and confirms that the optimal threshold level of external debt in the ECOWAS countries is 111%. Intuitively, the result indicates that any increase in external debt above 111% will reduce growth in the ECOWAS countries by 0.0001% while below the threshold level, economic growth will improve by 0.0222%. The policy implication is that, governments of the ECOWAS countries should ensure that, external debt are utilized in growth enhancing sectors, with a view to boost growth. Also, governments should develop debt management strategic policies, with a view to keep debt levels within sustainable limits.},
 year = {2021}
}

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TY  - JOUR
T1  - External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis
AU  - Abu Bakarr Tarawalie
AU  - Talatu Jalloh
Y1  - 2021/10/15
PY  - 2021
N1  - https://doi.org/10.11648/j.ijber.20211005.13
DO  - 10.11648/j.ijber.20211005.13
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 178
EP  - 186
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20211005.13
AB  - Literature on the debt-growth nexus postulates that external debt is viewed as capital that closes the financing gap, boost investment and promote growth. Against this background, and given the low revenue mobilization drive, the ECOWAS Member States resort to external borrowing with a view to complement domestic revenue and enhance their ability to finance large infrastructural projects and boost economic growth. However, external debt accumulation has not translated into high growth in the ECOWAS Member States. Thus, the paper investigates the impact of external debt on economic growth in the ECOWAS countries, and determines the optimal threshold level of external debt that promotes growth. The study utilizes panel data for 15 countries spanning from 2000 to 2019, and employs four estimation techniques including the Pooled Ordinary Least Squares (POLS), Fixed Effect Model (FEM), Random Effect Model (REM) and Panel Corrected Standard Errors (PCSE) techniques. The empirical results suggest that external debt (ED), Openness to trade (Opn) and Control of Corruption (CoC) are the main determinants of economic growth in the ECOWAS countries. Specifically, openness has a positive effect on growth, while both external debt and control of corruption have negative impact on growth. Furthermore, the study reveals evidence of a nonlinear relationship between external debt and real GDP, and confirms that the optimal threshold level of external debt in the ECOWAS countries is 111%. Intuitively, the result indicates that any increase in external debt above 111% will reduce growth in the ECOWAS countries by 0.0001% while below the threshold level, economic growth will improve by 0.0222%. The policy implication is that, governments of the ECOWAS countries should ensure that, external debt are utilized in growth enhancing sectors, with a view to boost growth. Also, governments should develop debt management strategic policies, with a view to keep debt levels within sustainable limits.
VL  - 10
IS  - 5
ER  -

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Author Information

Abu Bakarr Tarawalie

Department of Economics and Commerce, Fourah Bay College, University of Sierra Leone, Freetown, Sierra Leone
Talatu Jalloh

Department of Economics, University of Ghana, Accra, Ghana

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Abu Bakarr Tarawalie, Talatu Jalloh. (2021). External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. International Journal of Business and Economics Research, 10(5), 178-186. https://doi.org/10.11648/j.ijber.20211005.13

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ACS Style

Abu Bakarr Tarawalie; Talatu Jalloh. External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. Int. J. Bus. Econ. Res. 2021, 10(5), 178-186. doi: 10.11648/j.ijber.20211005.13

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AMA Style

Abu Bakarr Tarawalie, Talatu Jalloh. External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis. Int J Bus Econ Res. 2021;10(5):178-186. doi: 10.11648/j.ijber.20211005.13

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@article{10.11648/j.ijber.20211005.13,
  author = {Abu Bakarr Tarawalie and Talatu Jalloh},
  title = {External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis},
  journal = {International Journal of Business and Economics Research},
  volume = {10},
  number = {5},
  pages = {178-186},
  doi = {10.11648/j.ijber.20211005.13},
  url = {https://doi.org/10.11648/j.ijber.20211005.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20211005.13},
  abstract = {Literature on the debt-growth nexus postulates that external debt is viewed as capital that closes the financing gap, boost investment and promote growth. Against this background, and given the low revenue mobilization drive, the ECOWAS Member States resort to external borrowing with a view to complement domestic revenue and enhance their ability to finance large infrastructural projects and boost economic growth. However, external debt accumulation has not translated into high growth in the ECOWAS Member States. Thus, the paper investigates the impact of external debt on economic growth in the ECOWAS countries, and determines the optimal threshold level of external debt that promotes growth. The study utilizes panel data for 15 countries spanning from 2000 to 2019, and employs four estimation techniques including the Pooled Ordinary Least Squares (POLS), Fixed Effect Model (FEM), Random Effect Model (REM) and Panel Corrected Standard Errors (PCSE) techniques. The empirical results suggest that external debt (ED), Openness to trade (Opn) and Control of Corruption (CoC) are the main determinants of economic growth in the ECOWAS countries. Specifically, openness has a positive effect on growth, while both external debt and control of corruption have negative impact on growth. Furthermore, the study reveals evidence of a nonlinear relationship between external debt and real GDP, and confirms that the optimal threshold level of external debt in the ECOWAS countries is 111%. Intuitively, the result indicates that any increase in external debt above 111% will reduce growth in the ECOWAS countries by 0.0001% while below the threshold level, economic growth will improve by 0.0222%. The policy implication is that, governments of the ECOWAS countries should ensure that, external debt are utilized in growth enhancing sectors, with a view to boost growth. Also, governments should develop debt management strategic policies, with a view to keep debt levels within sustainable limits.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - External Debt and Economic Growth Nexus in the Ecowas: A Threshold Analysis
AU  - Abu Bakarr Tarawalie
AU  - Talatu Jalloh
Y1  - 2021/10/15
PY  - 2021
N1  - https://doi.org/10.11648/j.ijber.20211005.13
DO  - 10.11648/j.ijber.20211005.13
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 178
EP  - 186
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20211005.13
AB  - Literature on the debt-growth nexus postulates that external debt is viewed as capital that closes the financing gap, boost investment and promote growth. Against this background, and given the low revenue mobilization drive, the ECOWAS Member States resort to external borrowing with a view to complement domestic revenue and enhance their ability to finance large infrastructural projects and boost economic growth. However, external debt accumulation has not translated into high growth in the ECOWAS Member States. Thus, the paper investigates the impact of external debt on economic growth in the ECOWAS countries, and determines the optimal threshold level of external debt that promotes growth. The study utilizes panel data for 15 countries spanning from 2000 to 2019, and employs four estimation techniques including the Pooled Ordinary Least Squares (POLS), Fixed Effect Model (FEM), Random Effect Model (REM) and Panel Corrected Standard Errors (PCSE) techniques. The empirical results suggest that external debt (ED), Openness to trade (Opn) and Control of Corruption (CoC) are the main determinants of economic growth in the ECOWAS countries. Specifically, openness has a positive effect on growth, while both external debt and control of corruption have negative impact on growth. Furthermore, the study reveals evidence of a nonlinear relationship between external debt and real GDP, and confirms that the optimal threshold level of external debt in the ECOWAS countries is 111%. Intuitively, the result indicates that any increase in external debt above 111% will reduce growth in the ECOWAS countries by 0.0001% while below the threshold level, economic growth will improve by 0.0222%. The policy implication is that, governments of the ECOWAS countries should ensure that, external debt are utilized in growth enhancing sectors, with a view to boost growth. Also, governments should develop debt management strategic policies, with a view to keep debt levels within sustainable limits.
VL  - 10
IS  - 5
ER  -

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