Effect of Total Debt Service, Capital stock and Inflationon Economic Growth in SSA: Difference GMM Analysis

Wycliffe Mugun
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Wycliffe Mugun: Department of Economics, Kaimosi Friends University College, Kenya

International Journal of Research and Scientific Innovation, 2021, vol. 8, issue 3, 144-154

Abstract: Over the past decades, the 1980s to mid-2005 rising debt levels raised concerns for many developing Nations. This was evidenced by the High Indebted Poor Countries Initiativean emblem of African countries struggle to tackle the debt problem. However, owing to the fact that there are limited studies on total debt service, various studies indicate divergent views on the effect of total debt service on economic growth. For this reason, it is not clear whether or not total debt service affect economic growth in Sub-Saharan Africa. The main objective of this study was to investigate the effect of total debt service on economic growth in Sub-Saharan Africa. The random effect model results indicated that total debt service had positive and statistically significant relationship with economic growth in SSA. One step difference Generalized Method of Moments results showed that total debt service had a positive and insignificant relationship with economic growth, capital stock had positive and statistically significant effect on economic growth in SSAwhile inflation had positive and statistically insignificant relationship with economic growth. The study recommends that SSA countries should exhibit restrain in contracting new external debt since total debt servicing was associated with decline in economic growth and also the governments should establish and adopt an optimal balance between external and domestic debt to maintain steady economic growth. The study concluded that SSA to actively engage in international trade since it facilitates technology transfer, exchange of information and opportunities to realize economies of scale and high volume of investment.

Date: 2021
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