This article aims to understand to other neglected effects of foreign debt by analyzing how difference in the utilization of currency parity between sub-Saharan African (SSA) countries affects the relationship between external debt and economic growth. In this work, SSA countries were subdivided into two groups: the sample of the Former French colonies that use CFA franc, which is link to the Euro through a fixed parity (FFCs) and the Former British Colonies where each country use s his own currency with a flexible regime exchange rate (FBCs). We use a dynamic growth model with data from 11 countries of the FFCs and 15 countries of the FBCs covering 2000 to 2016. We employed the Pooled Mean Group estimation technique for both groups of countries, which is appropriated for drawing conclusions from dynamic heterogeneous panels by considering long-run equilibrium relations. The empirical evidence shows that external debt has a significant negative effect on the economic growth of the FFCs, while having a significant positive effect on the economic growth of the FBCs.
Aboubacar, B., & Xu, D. Y. (2017). The Impact of Health Expenditure on the Economy Growth in Sub-Saharan Africa. Theoretical Economics Letters, 7, 615-622. https://doi.org/10.4236/tel.2017.73046
Acemoglu, D. (2009). Introduction to Modern Economic Growth. Princeton University Press.
ADI (2017). https://databank.worldbank.org/source/world-development-indicators
Barro, R. J. (1990). Government Spending in a Simple Model of Endogeneous Growth. Journal of Political Economy, 98, 103-125. https://doi.org/10.1086/261726
Blundell, R., & Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Cambos, N., & Kinoshita, Y. (2002). Foreign Direct Investment and Technology Transferred: Some Panel Evidence from the Transition Economies. The Manchester School, 70, 398-419. https://doi.org/10.1111/1467-9957.00309
Chikuba, S. M. (2003). The Impact of External Debt on Zambia’s Economic Growth. National Graduate Institute for Policy Studies.
Cohen, D. (1995). Large External Debt and (Slow) Domestic Growth a Theoretical Analysis. Journal of Economic Dynamics and Control, 19, 1141-1163. https://doi.org/10.1016/0165-1889(94)00822-Y
Evans, P. (1997). How Fast Do Economies Converge? The Review of Economics and Statistics, 79, 219-225. https://doi.org/10.1162/003465397556809
Fosu, A. K. (1999). The External Debt Burden and Economic Growth in 1980s: Evidence from Sub-Saharan Africa. Canadian Journal of Development Studies, 20, 307-318. https://doi.org/10.1080/02255189.1999.9669833
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
Isu, J. (2010). Nigeria’s External Debt and Economic Growth: An Error Correction Approach. International Journal of Business and Management, 6, 107-113. https://doi.org/10.5539/ijbm.v6n5p156
Iyoha, M. A. (1996). External Debt and Economic Growth in Sub-Saharan African Countries: An Econometric Study.
Jouini, J. (2015). Linkage between International Trade and Economic Growth in GCC Countries: Empirical Evidence from PMG Estimation Approach. The Journal of International Trade and Economic Development, 24, 341-372. https://doi.org/10.1080/09638199.2014.904394
Kao, C. (1999). Spurious Regression and Residual-Based Tests for Cointegration in Panel Data. Journal of Econometrics, 90, 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2
Krugman, P. (1988). Financing vs. Forgiving a Debt Overhang. Journal of Development Economics, 29, 253-268. https://doi.org/10.1016/0304-3878(88)90044-2
Lee, K., Pesaran, M. H., & Smith, R. (1996). Growth and Convergence in a Multi-Country Empirical Stochastic Solow model. Journal of Applied Econometrics, 12, 357-392. https://doi.org/10.1002/(SICI)1099-1255(199707)12:4 3.0.CO;2-T
Levine, A., Lin, C. F., & Chu, C. (2002). Unit Root Test in Panel: Asymptotic and Finite Sample Properties. Journal of Econometrics, 108, 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
Mahmoud, L. (2015). The Role of External Debt on Economic Growth: Evidence from Mauritania. International Journal of Economics and Management Sciences, 4, Article 1000240.
Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A Contribution to the Empirics of Economic Growth. The Quarterly Journal of Econometrics, 107, 407-437. https://doi.org/10.2307/2118477
Metwally, M. M., & Tamaschke, R. (1994). The Foreign Debt Problem of North African Countries. African Review of Money, Finance and Banking, No. 1-2, 109-122.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association, 94, 621-634. https://doi.org/10.1080/01621459.1999.10474156
Pesaran, M., & Smith, R. (1995). Estimation of Long Relationships from Dynamic Heterogeneous Panels. Journal of Econometrics, 68, 79-114. https://doi.org/10.1016/0304-4076(94)01644-F
Reinhart, C. M., Reinhart, V. R., & Rogoff, K. S. (2012). Public Debt Overhangs: Advanced-Economy Episodes since 1800. Journal of Economic Perspectives, 26, 69-86. https://doi.org/10.1257/jep.26.3.69
Reinhart, C., & Rogoff, K. (2010). Debt and Growth Revisited. MPRA Paper 24376, University Library of Munich.
Sachs, J. D. (1989). Conditionality, Debt Relief, and the Developing Country Debt Crisis. In Developing Country Debt and Economic Performance, Volume 1: The International Financial System (pp. 255-296). University of Chicago Press.
Sani, A. K., & Mbah, S. A. (2018). External Debt and Economy Growth: The Case of Emerging Economy. Journal of Economic Integration, 33, 1141-1157. https://doi.org/10.11130/jei.2018.33.1.1141
Sargan, J. D. (1958). The Estimation of Economic Relationships Using Instrumental Variables. Econometrica, 26, 393-415. https://doi.org/10.2307/1907619
Tchereni, B. H. M., Sekhampu, T. J., & Ndovi, R. F. (2013). The Impact of Foreign Debt on Economic Growth in Malawi. African Development Review, 25, 85-90. https://doi.org/10.1111/j.1467-8268.2013.12015.x
Ulaşan, B. (2015). Trade Openness and Economic Growth: Panel Evidence. Applied Economics Letters, 22, 163-167. https://doi.org/10.1080/13504851.2014.931914
Umaru, A., Hamidu, A., & Musa, S. (2013). External Debt and Domestic Debt Impact on the Growth of the Nigerian Economy. International Journal of Educational Research, 1, 70-85.