Public Debt and Economic Growth in Africa: The FDI Effect

Emmanuel Oluwafemi and Libo Xu ()
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Emmanuel Oluwafemi: Department of Economics, Faculty of Science and Environmental Studies, Lakehead University, Thunder Bay, ON P7B 5E1, Canada
Libo Xu: Department of Economics, Faculty of Science and Environmental Studies, Lakehead University, Thunder Bay, ON P7B 5E1, Canada

Economies, 2025, vol. 13, issue 12, 1-27

Abstract: This study examines the desirable public debt threshold for African economies and the effect of foreign direct investment (FDI) on economic growth, using secondary data from 1995 to 2019. The analysis employed panel-data threshold regression, and the results indicate that the debt threshold desirable for economic growth ranges from 22% to 85% of GDP, depending on the kind of model employed. Also, the results conclusively show that FDI always has a negative effect on economic growth when the economy operates below the bottom-debt threshold, with the negative FDI coefficient remaining significant across most of the analysis. It is thus crucial for policymakers to continue pursuing policies that encourage debt financing for major infrastructure projects that drive increased industrialization. This will also help to increase the local economies’ attractiveness to foreign investment and ensure that the FDI will only further boost economic growth and development.

Keywords: foreign direct investment; panel regression; African economies; threshold; government debt (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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