The effect of external debt on domestic investment in sub-Saharan African sub-regions

Njamen Kengdo Arsène Aurélien, Luc Nembot Ndeffo () and Désiré Avom ()
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Luc Nembot Ndeffo: University of Dschang, FSEG, Cameroon
Désiré Avom: University of Yaoundé 2 Soa, CEREG, Cameroon

Economic Research Guardian, 2020, vol. 10, issue 2, 69-82

Abstract: This paper investigates the effect of external debt on domestic investment in sub-Saharan Africa (SSA) during the period 1980-2017. It focuses on four zones in SSA (EAC, ECOWAS, CEMAC and SADC) and the methodology adopted is the Generalized Method of Moments (GMM). The Results show that external debt has a positive effect on domestic investment in SADC and EAC, with bearable debt threshold, which account for 74.33% of Gross Domestic Product (GDP) in the EAC zone. For CEMAC and ECOWAS, the effect of external debt on domestic investment is rather negative, but for a debt threshold below 94.73% of GDP in CEMAC, the effect on investment is positive. Our results imply that public policies for improving domestic investment and assuring sustainable debt should be promoted: to concentrate investments in sectors with ripple effects that can boost other sectors; to observe multilateral surveillance across countries over the long term; and strengthening investment thanks to the improvement of the business climate.

Keywords: External debt; Domestic investment; Generalized Method of Moments (search for similar items in EconPapers)
JEL-codes: C23 H63 O19 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:wei:journl:v:10:y:2020:i:2:p:69-82

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