Climate change and external debt vulnerability: the case of Sub-Saharan Africa

Fentaw Leykun ()
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Fentaw Leykun: College of Business and Economics, Bahir Dar University

Journal of Innovation and Entrepreneurship, 2024, vol. 13, issue 1, 1-27

Abstract: Abstract This study examined the influence of climate change vulnerability on the external debt vulnerability of Sub-Saharan Africa, with a focus on the Vulnerable Twenties (V20s), utilizing panel data spanning from 2015 to 2020. The climate readiness, climate vulnerability, and external debt vulnerability indices were derived via principal component analysis (PCA). The results from the system GMM analysis indicate that climate readiness exhibits a negative and significant impact across short- and long-term periods for the overall sample. However, for the V20s, the negative effect of climate readiness shifts to a positive and significant one over both short and long terms, with the long-term effect being more notable. These findings highlight a vicious cycle between debt and climate crises within the V20s. Thus, prioritizing debt relief over climate finance loans, decarbonizing greenhouse gas emissions, redirecting funds for climate goals, improving debt practices, and investing in public services would break nations’ vicious cycle of debt and climate vulnerability.

Keywords: Sub-Saharan Africa; Climate change vulnerability; External debt vulnerability; Adaptation; Vicious cycle (search for similar items in EconPapers)
JEL-codes: F14 H63 H68 Q54 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s13731-024-00416-1

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