Effect of external debt on economic growth in sub-Saharan Africa: System GMM estimation

Figures & data

Table 1. Descriptions of the study variables and expected sign of coefficients

Variables of the study	Description the variables	Source	Expected sign
Real GDP (RGDP)	GDP per capita is gross domestic product divided by midyear population. It is inflation adjusted GDP.	WDI
Export(EXP) as % of GDP	It represents the value of all goods and other market services provided to the rest of the world.	WDI	+
Total external debt (EXDBT)	It is debt owed to nonresidents repayable in currency, goods, or services. It is total external debt to GDP ratio.	WDI	±
Gross capital formation (GCF) as % of GDP	It is addition to the fixed assets of the economy plus net changes in the level of inventories.	WDI	±
Government expenditure(GE) as % of GDP	It is general government final consumption expenditure.	WDI	-
Inflation growth (CPI)	It reflects the annual percentage change in the cost to the average consumer.	WDI	-
Labor force (LBF)	It comprises people ages 15 and older who supply labor for the production of goods and services	WDI	+

Source: Authors building, 2023; WDI denotes World Development Indicator.

Table 2. Sample Sub-Saharan African (SSA) countries selected for the study

Sample countries		Sample countries		Sample countries		Sample countries
1	Angola	11	Congo, Dem. Rep.	21	Kenya	31	Senegal
2	Benin	12	Congo, Rep.	22	Lesotho	32	Sierra Leone
3	Botswana	13	Cote d’Ivoire	23	Madagascar	33	South Africa
4	Burkina Faso	14	Eswatini	24	Mali	34	Sudan
5	Burundi	15	Ethiopia	25	Mauritania	35	Tanzania
6	Cabo Verde	16	Gabon	26	Mauritius	36	Togo
7	Cameroon	17	Gambia, The	27	Mozambique	37	Uganda
8	Central African Rep.	18	Ghana	28	Niger	38	Zambia
9	Chad	19	Guinea	29	Nigeria	39	Zimbabwe
10	Comoros	20	Guinea-Bissau	30	Rwanda

Source: Table is authors’ building; countries are from World Development Indicator (2021).

Table 3. Descriptive analysis of the study variables

Variables	In shorts	Observation	Minimum	Maximum	Mean	Standard dev.
Real GDP	log_RGDP	429	2.6928	6.0689	4.38085	8.4251
External debt	log_EXDBT	429	18.6830	25.9702	22.3641	1.4773
Gov’t expend.	log_GE	429	1.2774	3.7026	2.5942	0.4402
Gross Ca.Form.	log_GCF	429	1.24193	4.3745	3.1250	0.4149
Inflation	log_CPI	429	−0.1884	6.4726	4.5506	0.3155
Labor force	log_LBF	429	12.0470	18.0781	15.2382	1.4483

Source: Authors computation from STATA 15. Notes: all variables are in log form. Gross Ca.Form. Denotes gross capital formation, Gov’t Expend is government final consumption expenditure.

Table 4. Mean value of external debt across sample countries of SSA (2011–2021)

Country	EXDBT	Country	EXDBT	Country	EXDBT
Angola	24.6891	Eswatini	20.4826	Mozambique	24.3528
Benin	21.7642	Ethiopia	23.6967	Niger	21.7364
Botswana	23.4577	Gabon	22.4143	Nigeria	24.3768
Burkina Faso	23.3936	Gambia, The	20.3204	Rwanda	22.1001
Burundi	21.6819	Ghana	23.7368	Senegal	23.2642
Cabo Verde	21.3235	Guinea	21.6266	Sierra Leone	21.2183
Cameroon	24.3067	Guinea-Bissau	19.9659	South Africa	25.7706
Central African Rep.	21.4642	Kenya	23.8083	Sudan	23.8139
Chad	23.1646	Lesotho	20.9234	Tanzania	23.6267
Comoros	20.8200	Madagascar	21.9667	Togo	21.0289
Congo, Dem. Rep.	22.7229	Mali	22.1386	Uganda	22.9773
Congo, Rep.	22.2922	Mauritania	22.2965	Zambia	23.3310
Cote d’Ivoire	23.3723	Mauritius	23.1614	Zimbabwe	23.0798

Source: Authors’ computation from STATA 15. Notes: EXDBT is an external debt. It is in a log from.

Table 5. Correlation matrix of the study variables

Variable	RGDP	EXDBT	EXP	GE	GCF	CPI	LBF
RGDP	1.0000
EXDBT	−0.8974	1.0000
EXP	0.0656	−0.0049	1.0000
GE	−0.2279	−0.1148	0.0835	1.0000
GCF	0.1379	0.2668	0.1074	0.1057	1.0000
CPI	−0.2289	0.2639	−0.0499	0.0191	0.0501	1.0000
LBF	0.8064	0.7257	−0.2851	−0.2924	0.1047	0.2650	1.0000

Source: Authors’ computation from SATATA15. Notes: RGDP is a real GDP, EXDBT is external debt, EXP is export, GE is government consumption expenditure, GCF is gross capital formation, CPI is inflation and LBF is labour force. All variables are in the log form.

Table 6. The results of Levin-Lin-Chu unit-root test and Harris-Tzavalis unit-root test

Variables	Levin-Lin-Chu (LLC) unit-root test			Harris-Tzavalis (HT) unit-root test
	Statistic	p-Value	Decision at I(0)	Statistic	p-Value	Decision at I(0)
$log\mathrm{\_}RGDP$	−5.0861	0.0000*	Stationary	0.2995	0.0005*	Stationary
$log\mathrm{\_}EXP$	−7.3894	0.0000*	Stationary	0.6000	0.0001*	Stationary
$log\mathrm{\_}EXDBT$	−4.7866	0.0000*	Stationary	0.9076	0.0080**	Stationary
$log\mathrm{\_}GE$	−4.5144	0.0000*	Stationary	0.5725	0.0000*	Stationary
$log\mathrm{\_}GCF$	−4.0930	0.0000*	Stationary	0.6200	0.0007*	Stationary
$log\mathrm{\_}CPI{\hspace{0.17em}}_{it}$	−11.8973	0.0000*	Stationary	0.9058	0.0018*	Stationary
$log\mathrm{\_}LBF$	−2.3309	0.0099**	Stationary	0.7033	0.0000*	Stationary

Source: Own computation from STATA 15. Notess: *, **denote 1% and 10% level of significance, respectively.

Table 7. Results of Hausman test for model selection

Lagged regressand	Pooled OLS	Fixed Effect Model	Difference GMM	Model selected
L1.log_RGDP	0.9482	0.6523	0.1052	System GMM

Source: Own computation from STATA 15. Notes: L1.log_RGDP is the lag 1 of the dependent variable of the study.

Table 8. A two-step system GMM result on the effect of external debt and economic growth

Dynamic panel-data estimation, two-step system GMM (short run)
Variables	Coefficients	P>|z| value	Decision criteria’s (panel diagnostic tests)
log_RGDP |L1	1.0208 (0.0112)	0.000***	Number of observations = 390 Number of groups = 39 Number of instruments = 21 Arellano-Bond test for AR(2) Pr > z = 0.826 Arellano-Bond test for AR(1) Pr > z = 0.031 Hansen test of overid: Prob > chi2 = 0.217 Wald chi2(15) = 111226.11
log_EXDBT	−0.0344 (0.0110)	0.002***
log_EXP	0.0277 (0.0043)	0.000***
log_LBF	0.0184 (0.0055)	0.001 ***
log_GCF	0.0056 (0.0196)	0.775
log_GE	−0.0209 (0.0171)	0.223
log_CPI	−0.0101 (0.0201)	0.614
Year(y*)	0.0134 (0.0028)	0.000***
_cons	−27.0114 (5.6858)	0.000***

Source: Authors computation from STATA15. Notes: ***, **,* denote 1%, 5% and 10% level of significance, respectively; () shows the corrected standard errors.

Table 9. A two-step system GMM result on the effect of external debt and economic growth

Variables	Coeffeceints	P>|z| value	The GMM long run generation command
log_EXDBT	−0.648475	0.001***	nlcom (_b[log_EXDBT])/(1-_b[L.log_RGDP])
log_EXP	0.327179	0.088**	nlcom (_b[log_EXP])/(1-_b[L.log_RGDP])
log_LBF	0.8844943	0.153	nlcom (_b[log_LBF])/(1-_b[L.log_RGDP])
log_GCF	0.2693906	0.766	nlcom (_b[log_GCF])/(1-_b[L.log_RGDP])
Log_GE	−0.001273	0.228	nlcom (_b[log_GE])/(1-_b[L.log_RGDP])
log_CPI	−0.4851951	0.651	nlcom (_b[log_CPI])/(1-_b[L.log_RGDP])

Source: authors’ computation from stata15. Note: ***, **, show 1%, and 10% significance level, respectively.

World development Indicator. (2021). World development indicators. https://databank.worldbank.org/selection-of-indicators/id/fc321ecc.

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