The Determinants of External debt in Sub Saharan Africa

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

No 2018-02, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: Determining the factors that influence external indebtedness in developing countries became an important focus for research following the damaging external debt crises of the early 1970s. While the resulting research has provided valuable insights, there has been a tendency to rely solely on economic factors and surprisingly little concern has been given to political factors that may be important determinants of debt. This paper investigates the main contributing factors to debt accumulation using panel data methods and focusing on a group of 36 Sub Saharan Africa countries (SSA) over the period 1975 to 2012. Instead of relying only on economic variables, the paper introduces a number of political variables that are found to be important and show the need to nuance the economic arguments. Democratically administered governments in the region are found to accumulate more debt than autocratic ones and parliamentary systems seem to accumulate more debt than presidential democracies. Furthermore, countries with a constrained executive and countries with more open and competitive electoral systems tend to lead to the accumulation of less debt. Finally, countries that received debt relief seem to accumulate less debt relative to those that did not while economic activity and openness are important in reducing debt in the region.

Date: 2018
New Economics Papers: this item is included in nep-afr
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