An Empirical Assessment of External Debt and Economic Growth Nexus in West Africa Countries

Abstract

The mounting cost of external debt servicing in the face of volatile growth indices amongst developing economies has renewed research interest in the so far non-consensual claim of cross-border capital flows in the form of external debt as a veritable source of fostering or stifling the economic growth of the ever increasingly interdependent global economies. The paper investigated the impact of external debt on economic growth in the ECOWAS sub-region during the period 1990-2023. The study analyzed a panel data set using the fixed and random effect models. The results of the panel data unit root test confirmed that the variables in the specified model were integrated in different orders I(1) and I(2). The Pedroni panel co-integration test indicated that a long-run relationship existed among the variables in the specified debt-growth model. The results of the model estimation revealed that external debt negatively and significantly impacted economic growth at the 1% level during the period under study. The results further revealed that debt service negatively impacted economic growth, but failed the significance test at the 5% level. The study thus concluded that external debt compromised the economic growth of ECOWAS sub-region during the period under review. Accordingly, the paper recommended that countries in the ECOWAS sub-region should strive to reduce external debt accumulation and the facilities already incurred from external debt should be directed at efficiently boosting the economic growth of the region.