Military Spending, Conflict and External Debt in SSA

Adonia Chiminya, John Dunne and Eftychia Nikolaidou
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Adonia Chiminya: School of Economics, University of Cape Town

No 2018-01, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: The damaging economic effects of the debt crises on Africa in the late 1980s encouraged considerable research interest on the determinants of external debt in developing economies. One potentially important factor for debt accumulation that has received relatively little attention is the impact of military spending, despite a number of well-publicised scandals over the procurement of unnecessary and expensive high tech weapons systems. Another related factor is the possibility that the countries studied have been involved in conflict. This study provides an empirical analysis of the impact of military spending and conflict on external debt in Sub Saharan Africa from 1988 to 2013. It uses dynamic panel methods to investigate the experience of 35 countries. The results show evidence of a positive impact of military spending on external debt, but with some evidence of heterogeneity across the countries. Furthermore, findings indicate that conflict increases the positive effect of military spending on debt in African countries, suggesting that policies to improve security and reduce military spending could be beneficial in reducing external debt and, potentially, improving economic performance in the region.

Date: 2018
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