From debt to development: evaluating the effects of external debt, political instability, and inflation on economic growth in the Democratic Republic of Congo

Amini Jephté Byamungu () and Diping Zhang ()
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Amini Jephté Byamungu: Zhejiang University of Science and Technology
Diping Zhang: Zhejiang University of Science and Technology

SN Business & Economics, 2025, vol. 5, issue 10, 1-26

Abstract: Abstract This paper examines the interplay between external debt, political instability, inflation, and economic growth in the Democratic Republic of Congo (DRC), one of the wealthiest nations on the planet, yet a fragile state grappling with protracted socio-political crises. Using World Bank data from 1994 to 2022, the study employs a dual modeling approach, combining linear techniques (Ordinary Least Squares, OLS, and Johansen co-integration) with the Logistic Smooth Transition Autoregressive (LSTAR) model to investigate both linear and non-linear dynamics. The results reveal a significant negative linear effect of external debt on growth, with no long-run relationship. The regime-switching (LSTAR) model uncovers a non-linear, U-shaped relationship, indicating an optimal external debt threshold of 17.16% of the Gross Domestic Product (GDP). Below this threshold, debt hampers growth; conversely, above it, debt stimulates growth, aligning with the Debt Laffer Curve. Trade openness emerges as the most influential positive driver of growth, while inflation exerts a significant negative impact. However, political instability failed to affect economic growth. The study emphasizes the importance of balancing debt sustainability, trade liberalization, and macroeconomic stability to achieve resilient and inclusive economic development. Policy implications include maintaining debt levels above the 17.16% threshold to avoid growth impediments, directing borrowing toward high-productivity sectors, and implementing structural reforms to enhance trade competitiveness and macroeconomic stability. These findings offer vital perspectives for policymakers in the DRC and similar resource-dependent, politically fragile economies.

Keywords: Debt threshold; External debt; GDP growth; Political instability; Regime-switching model (search for similar items in EconPapers)
JEL-codes: F34 H63 O10 O47 O55 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43546-025-00864-1

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