The Non-Linear Relationship Between External Debt and Economic Growth in African Economies: The Role of Financial Stability, Investment, and Governance Quality

Makram Nouaili ()
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Makram Nouaili: University College of Duba, Accounting Department, University of Tabuk, Tabuk 47512, Saudi Arabia

Economies, 2025, vol. 13, issue 10, 1-16

Abstract: This paper estimates a nonlinear asymmetric dynamics model in the threshold panel data framework to study the extent to which the quality of governance, investment, and financial stability affect the impact of external debt on economic growth in 47 African countries from 2002 to 2022. As a general approach, we use the first-differenced GMM estimator, which allows both threshold variables and regressors to be endogenous. The results confirm that external debt becomes a drag on growth beyond a threshold of 53.49% relative to GDP. Furthermore, the results show that external debt appears to stimulate economic growth mainly by orienting it towards productive investment. In addition, the results show that better governance quality and financial stability accentuate the positive impact of external debt on economic growth. Based on the findings, this study proposes several policy recommendations.

Keywords: external debt; economic growth; financial stability; dynamic panel threshold models; governance; Africa (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:13:y:2025:i:10:p:300-:d:1774155

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