







































Asian Themes in Social Sciences Research 
ISSN: 2578-5516 

Vol. 8, No. 1, pp. 1-23 
2024 

DOI: 10.33094/atssr.v8i1.1598 
© 2024 by the authors; licensee Online Academic Press, USA 

 
Accepted: 13 May 2024 | Published: 3 June 2024 

1 
© 2024 by the authors; licensee Online Academic Press, USA 

 

  

 
 
 
 

External debt and economic growth in selected African 
economies: A heterogeneous dynamic panel data analysis 
 

 

Innocent U. Duru1* --- Okoroafor, O.K. David2 --- Ehidiamhen, Paul O.3 --- Iyaji Danjuma4 --- 
Fortunatus Chikeziem Okorontah5 --- Obisike, Ndubueze E.6 --- Chukwuemeka Nwamuo7 --- 
Ojo Toluwalashe Favour8 

 

1,5,6,7Department of Economics, Rhema University Nigeria, Aba, Abia State, Nigeria. 
1Email: iud3x@yahoo.com  
5Email: chizim4teens@yahoo.com  
6Email: obisikendubueze@yahoo.com   
7Email: mekuzy2002@yahoo.com  
2,3Department of Economics, University of Abuja, Abuja, Nigeria. 
2Email: okoroafor@uniabuja.edu.ng  
3Email: ehiobohpaul@yahoo.com  
4Department of Economics, Nigerian Army University, Biu, Borno State, Nigeria. 
4Email: danjumaiyaji@gmail.com  
8Ado-Ekiti State University, Ekiti State, Nigeria. 
8Email: ojotoluwalashe1995@gmail.com  
 

 

Abstract 

The nexus between external debt and economic growth of Ghana, Kenya, Morocco, 
Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021 was examined in this study.  
For analysis, the Pooled Mean Group Heterogeneous Dynamic Panel Data Approach and 
the Toda Yamamoto Granger causality tests technique were deployed. The results 
indicated that external debt had a negative effect on economic growth. Moreover, debt 
service exerted a positive impact on economic growth. The findings of the causality tests 
showed that there is no causal link between external debt and economic growth. 
Furthermore, no causal link was established between debt service and economic growth. 
As a result, the study suggests that the capacity of these economies in terms of revenue 
generation and debt servicing should be reinforced by their governments through the 
channelling of external debt into long-term productive investments for the realization of 
positive economic growth. Moreover, the policies on debt servicing in these economies 
should be sustained since it is yielding the desired results. Furthermore, thoroughly 
assessed projects of high significance should be the only yardstick for the contraction of 
foreign loans in these economies. Also, the policy objectives of external debt, debt service 
and economic growth can be pursued separately from one another in this group of 
economies in Africa. 

 

Keywords: Africa, Dynamic heterogeneous panels, Economic growth, External debt, Pooled mean group estimation, Toda 
Yamamoto causality. 
Licensed:  This work is licensed under a Creative Commons Attribution 4.0 License. 
Funding:   This study received no specific funding 
Institutional Review Board Statement: Not Applicable. 
Transparency: The authors confirm that the manuscript is an honest, accurate, and transparent account of the study; that no 
vital features of the study have been omitted; and that any discrepancies from the study as planned have been explained. This 
study followed all ethical practices during writing. 
Competing Interests: The authors declare that they have no competing interests.  
Authors’ Contributions: Conceptualization, all authors; Methodology, software and formal analysis, I.U.D., O.O.K.D.; 
Validation, E.P.O., O.N.E., O.T.F.; Investigation, I.D., C.N., O.T.F.; Data Curation, I.U.D., O.O.K.D., F.C.O.; Writing – 

https://www.doi.org/10.33094/atssr.v8i1.1598
mailto:iud3x@yahoo.com
mailto:chizim4teens@yahoo.com
mailto:obisikendubueze@yahoo.com
mailto:mekuzy2002@yahoo.com
mailto:okoroafor@uniabuja.edu.ng
mailto:ehiobohpaul@yahoo.com
mailto:danjumaiyaji@gmail.com
mailto:ojotoluwalashe1995@gmail.com


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Original Draft, I.U.D.; Writing – Review & Editing, C.N., O.T.F., I.U.D.; Visualization, O.N.E., E.P.O., I.D., F.C.O.; 
Supervision, O.O.K.D., I.U.D., F.C.O., O.N.E. All authors have read and agreed to the published version of the manuscript. 

 
1. Introduction 

Most economies in Africa are plagued with a grave burden of external debt thereby making the realization 
of fast and viable economic growth and development a mirage. Thus, the achievement of rapid and worthwhile 
economic growth becomes their major objective. However, Adepoju, Salau, and Obayelu (2007) argued that the 
accomplishment of this economic growth is compounded by dwindling capital formation as a result of low 
investments and savings in these countries. The quest of the government to address this through a deficit budget 
has resulted in external borrowings. As was cited in Tefera (2019) external debt based on the Africa Economic 
Chart Book 2018, will not constitute a great dilemma if contracted debts are committed to viable projects and 
debt repayments and further investments are addressed through the resulting economic growth. The aid granted 
to these economies would have been a source of succour in the financing of some of these deficits.  

However, as stated by Muhanji (2010) ‘’much of the aid was used to finance grandiose projects of little 
economic value and to underwrite economically ruinous policies’’. The external debt-economic growth debate 
in the economic literature came to limelight after the assertion of Reinhart and Rogoff (2010) based on a far-
reaching experimentation of developing and developed economies that debt to GDP ratio of more than 90% is 
unfavourable to growth. It was further strengthened by the global economic and financial crisis that began in 
2007 and affected several countries in the world. Tomaselli (2018) argued that the interest and shift in focus on 
the subject matter of debt to developed economies was reawakened by it. This recession provoked by dwindling 
prices of houses in the United States and an increasing number of borrowers incapable of repaying their loans 
resulted in an extraordinary shock to the financial system that led to one of the most noticeable economic cramps 
after the Great Depression. 

Financial experts have expressed their concerns over the decisions of some governments in Africa to 
continue borrowing amid their unsustainable debts. Most of these governments have not heeded the advice of 
Alexander Hamilton that a state debt that is not too much would amount to a state blessing to us. They argued 
that the governments of these countries need to slow down on borrowing since their external debt stock is 
unsustainable. Thus, like a ticking time bomb, these growing debts need to be defused to avoid an economic 
earthquake. The external debt problem in the world undertook a critical reputation and drew the attention of 
policymakers globally in the wake of the Mexican debt crisis that began in 1982. Evidence from financial crises 
after the 1980s showed that high external debt compounded the susceptibility of economies in terms of capital 
flight and exchange rate oscillations (Chen, 2019).  

Several analysts think that hindrances resulting from the burden of external debt of numerous developing 
economies, SSA inclusive to some extent are responsible for their poor investments and growth outcomes from 
the time when the debt crisis in the world began in 1982 (Eshetu, 2021). This resulted in the implementation of 
structural adjustment policies enforced by the International Monetary Fund (IMF) and World Bank (WB) in 
most of these economies. However, these programmes did not yield the desired outcomes. The institution of the 
Heavily Indebted Poor Countries (HIPC) initiative in 1996 by the IMF and WB was a testament by the creditors 
that SAP is deficient in terms of capability to stop the growing debt in developing economies. No wonder, 
academics, policymakers, and economists have been contemplating the best way in terms of speed and degree to 
overcome the economic problems of external debt in the world. 

A painstaking investigation of the nexus between external debt and economic growth in selected economies 
of Africa could serve as a platform that would underpin the development of an efficient strategy for debt 
management that would sustain economic growth and development in the African continent. The current and 
future generations of policymakers could resort to the outcome of this study as an uncommon resource for the 
development of economic plans and the navigation of their economies in an unpredictable world. For the 
economies under investigation, despite the contracted debt, evidence from Figures 8-7 showed that external 
debt exceeded the GDP growth rates of these economies. This suggests that the contracted debt probably did 
not yield the desired result in terms of economic growth. Again, the negative relationship between external debt 
and GDP growth rates could be a confirmation that borrowed funds possibly were dispatched by leaders, 
particularly dictators of these countries to Western economies through capital flight rather than utilization in 
productive investment to boost economic growth.  

In addition, in the face of external borrowings, Figures 15-21 indicated that external debt service diminished 
the GDP growth rates of these economies for most of the periods under review. Furthermore, Figures 22 to 28 
revealed that the servicing of external debt reduced the Foreign Direct Investment (FDI) inflows in most of 
these countries for the periods under study. This can unearth further macroeconomic distortions. Hence, the 
dwindling economic growth and the external debt stocks in these economies have drawn the attention of 
scholars. Most of these economies are experiencing fast growth in their external debts, raising doubts about 
their effect on their GDP growth rates. The questions to address in this paper are: What is the impact of external 
debt on economic growth in the selected countries of Africa? What is the causal relationship between external 
debt and economic growth in the selected economies of Africa?  

In light of this background and given the ambiguous nature of the link between external debt and economic 
growth, this investigation seeks to probe the effect of external debt on the economic growth of Ghana, Kenya, 



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Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021. Also, it would examine the causal link 
between the variables of interest. Besides the introduction, this study has five sections. The overview and 
practical evidence of external debt in selected economies are described in section two. The theoretical framework 
and empirical issues are presented in section three. The fourth section will dwell on the methodology and model 
specification. The empirical results are discussed in section five whereas section six would concentrate on the 
conclusion and recommendations. 

 

 
Figure 1. External debt of Ghana, 1981-2021. 

 
2. Overview and Practical Evidence of External Debt in Selected Countries, 1981-2021 
2.1. External Debt of Selected Countries, 1981-2021 

The external debt of Ghana is depicted in Figure 1. The external debt exhibited an upward growth trend 
from 1981 to 2000. However, the external debt stock declined continuously from 2001 and reached its lowest 
point in 2008. Ghana's external debt to Gross National Income (GNI) moved from 25% in 2009 to 31% in 2012. 
The external debt stock to GNI dropped to 26% in 2013. The external debt to GNI rose to 42% in 2015 and 
became stable from 2016 to 2019. It then rose from 45% in 2020 to 48% in 2021. 

 

 
Figure 2. External debt of Kenya, 1981-2021. 

 
Figure 2 revealed that the external debt trend in Kenya fluctuated from 1981 to 1994. Afterwards, it 

declined continuously and amounted to 49% in 1998. It fluctuated between 1999 and 2006.  However, it became 
stable from 2007 to 2015. The external debt to GNI rose from 29% in 2016 to 38% in 2021.  

 



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Figure 3. External debt of Morocco, 1981-2021. 

 
The external debt of Morocco from 1981-2021 is indicated in Figure 3. It showed that the highest external 

debt to GNI recorded by Morocco for the period under review was 112% in 1985. It fluctuated between 1986 
and 2001. It declined continuously from 44% in 2002 to 26% in 2007. It grew from 23% in 2008 to 47% in 2017. 
However, it dropped to 43% in 2018. It fluctuated between 2019 and 2021.  

 

 
Figure 4. External debt of Nigeria, 1981-2021. 

 
Figure 4 shows Nigeria’s external debt from 1981 to 2021. Evidence from Figure 4 revealed that external 

debt as a share of GNI rose continuously from 1981 to 1989. The execution of the Structural Adjustment 
Programme (SAP) was responsible for the escalation of foreign borrowings during the era. The external debt 
recorded in 1994 was alarming. It was 103% and the highest for the period under study. The drop in the revenue 
of the government was partly responsible for the high debt accumulation. Another factor was Decree No.3 of 
1985 which pegged the maximum external loan at N5 billion. After the pronouncement of this decree in 1985, 
Nigeria’s external debt assumed an upward trajectory till 2005. After the 2005 debt relief granted to Nigeria, 
external debt exhibited a downward trend from 2006 to 2016. However, it assumed a growth course from 2016 
to 2021 owing to the reappearance of foreign borrowings. It is worth noting that the crash in the international 
prices of petroleum products was mainly responsible for foreign borrowings from 2012 to 2021. 

 



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Figure 5. External debt of Rwanda, 1981-2021. 

 
Evidence from Figure 5 indicated that the external debt stock of Rwanda exhibited a rising trend, though 

on a gradual pace from 1981 to 1987 and fluctuated between 1988 and 1992. The external debt to GNI soared 
from 46% in 1993 to the highest point of 127% in 1994. The external debt value of 1994 which was more than 
double the rate recorded in 1993 affected the performance of the economy. It fluctuated between 1995 and 2005. 
It recorded the lowest value of 13% in 2006. It maintained a rising trajectory from 2007 to 2021.  

 

 
Figure 6. External debt of Tunisia, 1981-2021. 

 
The progress of the external debt as a share of GNI for the period under investigation is shown in Figure 

6. The external debt stock revealed a rising trend from 1981 to 1987. The rise in the stock of debt was mainly 
triggered by the economic recession of the 1970s, which affected the performance of Tunisia’s economy. It 
fluctuated between 1988 and 2015. The external debt to GNI maintained an upward trend from 2016 to 2020. 
In 2021, it recorded a value of 91%.  



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Figure 7. External debt of Zimbabwe, 1981-2021. 

 
Figure 7 shows that the external debt of Zimbabwe was pronounced throughout the period under review. 

Richardson (2004) argued that unwarranted government expenditure amid available revenues of government 
resulted in the growth of external debt. Richardson (2004) and Government of Zimbabwe (GoZ) (1998) 
maintained that the implementation of structural adjustment reforms in 1991, through the Economic Structural 
Adjustment Programme (ESAP) and Zimbabwe Programme for Economic and Social Transformation 
(ZIMPREST) resulted in additional foreign borrowings that increased the external debt of Zimbabwe. In the 
contention of Gono (2008); Government of Zimbabwe (GoZ) (1982) and Mumbengegwi (2002) the accumulation 
of external debt arrears owing to the shrinkage of the local economy and the surge in non-concessional external 
loans were accountable for the rise in external debt between 1980 and 2008. International Monetary Fund (2001) 
argued that the obvious drop in external debt between 1998 and 2001 is due to a decrease in external borrowing 
resulting from the postponement of Zimbabwe's right to borrowing by the International Monetary Fund (IMF) 
and World Bank, and other creditors' reluctance to offer new debt. In addition, Nyarota, Kavila, Mupunga, and 
Ngundu (2015) argued that the insufficient inflows of foreign direct investment between 2012 and 2014 was 
partly responsible for the increment in external debt. 

 

 
Figure 8. External debt and GDP growth of Ghana, 1981-2021. 

 
2.2. External Debt and GDP Growth of Selected Countries, 1981-2021 

The external debt and GDP growth of Ghana from 1981-2021 is shown in Figure 8. For the period under 
review, the external debt and the Gross Domestic Product (GDP) growth moved in diverse directions. The 
external debt was higher than the GDP growth throughout the investigation. The highest external debt as a 
share of GNI recorded for the study period was 133% in 2001. However, the highest GDP growth registered by 



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Ghana for the period under review was 11% in 2011. External debt and GDP growth maintained a negative 
relationship from 1981 to 2021. Despite the upward trajectory exhibited by external debt for most of the periods 
under investigation, the performance of GDP growth was dismal for the entire period. A pictorial assessment of 
the external debt and GDP growth trend in Figure 8 further revealed that high external debt affected the growth 
rates of GDP adversely for the entire episode. 

 

 
Figure 9. External debt and GDP growth of Kenya, 1981-2021. 

 
The illustration in Figure 9 revealed that the external debt was higher than the growth rate of GDP from 

1981 to 2021. The upward course of the external debt for the entire period under investigation is an indication 
that it affected Kenya's growth rates of GDP. In 1993, Kenya’s external debt as a percentage of GNI reached its 
peak. The growth rate of real GDP maintained a downward course over the study period.   

 

 
Figure 10. External debt and GDP growth of Morocco, 1981-2021. 

 
The relationship between external debt and growth rates of GDP from 1981 to 2021 is depicted in Figure 

10. Visual observation of this relationship gives convincing motivation to contend that the enormous external 
debt accumulated by the government of Morocco led to debt overhang. In addition, the two variables of interest 
maintained a negative link from 1981 to 2021. The global economic and financial crisis of 2008/2009 accounted 
for the dismal performance of growth rates of GDP between 2008 and 2009. 



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Figure 11. External debt and GDP growth of Nigeria, 1981-2021. 

 
As indicated in Figure 11, the external debt and GDP growth of Nigeria moved in reverse directions from 

1981 to 2005.  The external debt was higher than the GDP growth rates from 1981 to 2005. This suggested 
that the accumulation of new loans reduced the GDP growth. Low external debt co-existed with low GDP 
growth rates from 2006 to 2014. Nigeria experienced negative growth rates continuously from 1981 to 1984 
and 2016 to 2020. The structural adjustment loans accounted for the rise in Nigeria’s external debt from 1986 
to 1989. The negative growth rate recorded in 1987 was made more noticeable by the oil price crash that was 
prolonged in the world till the mid-1980s. Owing to the 2005 debt relief granted to her, the external debt 
dropped from 2006 to 2014. The GDP growth was affected by the global economic and financial crisis of 
2008/2009. After 2014, external debt exhibited an upward course from 2015 to 2021. Iyoha (1999) argued that 
structural adjustment was portrayed as a package for the restoration of short-run stabilization and enablement 
of medium to long-term sustainable growth. However, the period of SAP and the Economic Recovery Program 
(ERP) was portrayed by an increase in overall debt, payments for debt service and little inflow of external 
resources. 

 

 
Figure 12. External debt and GDP growth of Rwanda, 1981-2021. 

 
The GDP growth and external debt of Rwanda from 1981-2021 is presented in Figure 12. Except for 1982, 

1984, 1987, 1989, 1990, 1991, 1993, 1994, 1996, 1997, 2003 and 2020, which had negative GDP growth rates, 
positive growth rates were recorded for the remaining years under review. Also, external debt and GDP growth 
for Rwanda moved in contrary directions throughout the investigation. The accumulated debt was higher than 
GDP growth throughout the time of investigation.  As a result of this, the period under review was characterized 
by more payments for debt service and little inflow of foreign direct investment (FDI). 
 



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Figure 13. External debt and GDP growth of Tunisia, 1981-2021. 

 
Evidence from Figure 13 revealed that the external debt of Tunisia fluctuated between 1981 and 2016. The 

external debt exceeded the GDP growth rate from 1981 to 2021. Also, they moved in opposite directions for the 
period under study. The implication of this is that the contracted debt did not boost the economic growth of 
Tunisia to the desired level. The inverse link between external debt and GDP growth rates could be a 
confirmation that contracted funds possibly were dispatched by leaders to Western economies through capital 
flight rather than utilization in productive investment to boost economic growth.  

 

 
Figure 14. External debt and GDP growth of Zimbabwe, 1981-2021. 

 
The external debt and GDP growth trends of Zimbabwe between 1981 and 2021 are presented in Figure 

14. The external debt is stated as a share of GNI. The GDP and external debt of Zimbabwe moved in different 
directions for the entire time under investigation.  Throughout the phase of this investigation, external debt 
increased while GDP declined. The implication is that as Zimbabwe accumulates further debt, her GDP reduces. 
The GDP fluctuated for the entire period under review while additional debts were accumulated by Zimbabwe 
in the structural adjustment loans fashion. As indicated in Figure 14 the changing aspects of GDP growth in 
Zimbabwe in the contention of Saungweme (2020) have six phases: the pre-independence era (1965-1979); the 
corporatism era (1980-1990); the liberalism era (1991-1999); the economic recession era (2000-2008); the 
economic recovery era (2009-2013); and the economic stagnation and recession-era (2014-2020). A negative 
relationship between external debt and GDP growth is shown in Figure 14. The GDP growth and external debt 
displayed a downward trajectory and an upward course in the corporatism period respectively.  The two 
variables of interest displayed similar trends in liberalism, the economic recession, the economic recovery and 
the economic stagnation and recession eras.  This probe is in line with the submissions that dwindling GDP 
growth could result in higher levels of debt at some points.  
 



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Figure 15. GDP growth rates and external debt service for Ghana, 1981-2021. 

 
2.3. External Debt Service and GDP Growth Rates of Selected Countries, 1981-2021 

As indicated in Figure 15 there was an inverse link between real GDP growth rates and external debt 
service throughout the period under investigation. Figure 15 depicts a rising trend for external debt service but 
a declining trend for the real GDP growth rate for the entire period of study. In addition, external debt service 
fluctuated between 2000 and 2005. The external debt service and real GDP growth were close to each other 
from 1981 to 1985.  

 

 
Figure 16. GDP growth rates and external debt service for Kenya, 1981-2021. 

 
Figure 16 indicates the real GDP growth and external debt service of Kenya from 1981 to 2021. It revealed 

a negative relationship between growth rates of GDP and debt service. The debt service between 2015 and 2019 
put a colossal burden on Kenya. The economic growth of Kenya is seriously compounded by the debt servicing 
process in Kenya during this episode. The real GDP growth becomes dampened as additional funds are 
committed to debt service in Kenya.  



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Figure 17. GDP growth rates and external debt service for Morocco, 1981-2021. 

 
The relationship between the real GDP growth rates and debt service of Morocco from 1981 to 2021 is 

indicated in Figure 17. The two variables of interest maintained a negative relationship throughout the 
investigation. The implication is that the servicing of debt exerts immense fiscal pressure on Morocco. Thus; 
the economic growth of Morocco is compounded by the debt servicing process. A visual glance at Figure 17 
revealed that as additional funds are committed by Morocco to service debts, GDP become dampened.  

 

 
Figure 18. GDP growth rates and external debt service for Nigeria, 1981-2021. 

 
As depicted in Figure 18 external debt service and real GDP growth had a negative relationship from 1981 

to 2021. The servicing of debt exerts a mammoth fiscal burden on Nigeria. Muhanji (2010) argued that this 
burden exerted a harmful effect on government investment and the delivery of social services in Cote d'Ivoire, 
Ghana, Kenya, Malawi, Nigeria, Senegal, South Africa, Tanzania, Uganda, Zambia and Zimbabwe as mirrored 
in the drop in the percentage of government investment in GDP from the late 1970s and beyond in addition to 
excessive fiscal deficit level. This corroborates the findings of Rugumamu (2001) that the payment of external 
debt is economically depleting as it prolongs impending development; it is politically undermining as it 
endangers social unity; and, it is ethically intolerable as it harms the poorest of the poor.  



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Figure 19. GDP growth rates and external debt service for Rwanda, 1981-2021. 

 
The debt service and GDP growth rates trend from 1981-2021 is presented in Figure 19. The external debt 

and external debt service of Rwanda displayed a downward trajectory from 1981 to 2011. A rise in debt service 
payments from 2012 to 2021 was perhaps triggered by an increase in external debt during this episode. The 
scenario in Figure 19 particularly from 2012-2021 could force a crowding out effect problem if the condition 
remains unchecked. Furthermore, the budget deficit would increase as a result of a surge in external debt service 
worsened by enormous external debt accumulation. 
 

 
Figure 20. GDP growth rates and external debt service for Tunisia, 1981-2021. 

 
Figure 20 depicts a rise in the debt service of Tunisia from 1981 to 2021. On the other hand, the real GDP 

growth revealed a declining trend throughout the investigation. The rising levels of debt service could be 
attributed to an increase in external debt accumulation for the period under review. The remarkable decline in 
real GDP growth could be a pointer that the contracted funds were not channelled to productive uses. The 
variables of interest maintained an inverse relationship throughout the period of study.  

 



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Figure 21. GDP growth rates and external debt service for Zimbabwe, 1981-2021. 

 
Evidence from Figure 21 revealed that external debt service fluctuated from 1981-2021. The real GDP 

growth on the other hand exhibited a declining trajectory for the entire period under review. The real GDP 
growth and external debt service payment of Zimbabwe were equal in 2021.  

 

 
Figure 22. External debt service and foreign direct investment for Ghana, 1981- 2021. 

 
2.4. External Debt Service and Foreign Direct Investment for Selected Countries, 1981-2021 

The servicing of debt and the foreign direct investment of Ghana from 1981 to 2021 is depicted in Figure 
22. Evidence from the figure showed that debt service reduced foreign direct investments from 1981 to 2021. 
This substantiates the debt overhang theory that maintains that domestic and foreign investments would be 
suppressed by debt service if the external debt is greater than the nation's ability to repay.  



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Figure 23. External debt service and foreign direct investment for Kenya, 1981-2021. 

 
Figure 23 indicates the debt service and the foreign direct investment of Kenya from 1981 to 2021. It 

showed that foreign direct investments are diminished by debt service for the period under review. This is 
because the government will be forced to raise the tax level because of external debt accumulation to service the 
debt. Thus, foreign investors are expected to share in the tax increment. Also, it was evident that debt service 
and foreign direct investments in Kenya moved individually throughout the period under investigation. 

 

 
Figure 24. External debt service and foreign direct investment for Morocco, 1981-2021. 

 
As depicted in Figure 24 external debt service and foreign direct investment moved in opposite directions. 

Figure 24 revealed that external debt service lowered foreign direct investment throughout the investigation. 
The foreign direct investment prospects in Morocco are weighed down by payments for debt service. This is 
because investors, especially private investors; would be expected to pay more tax to the government for the 
repayment of accumulated debt. The discouragement of domestic and foreign investments corroborates the 
postulation of the debt overhang theory.  



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Figure 25. External debt service and foreign direct investment for Nigeria, 1981-2021. 

 
The servicing of debt and the foreign direct investment of Nigeria from 1981 to 2021 is depicted in Figure 

25. Evidence from the figure showed that debt service reduced foreign direct investments from 1981 to 2001. 
The foreign direct investment prospects in Nigeria are weighed down by payments for debt service.  

 

 
Figure 26. External debt service and foreign direct investment for Rwanda, 1981-2021. 

 
Figure 26 depicts the relationship between external debt service and foreign direct investment in Rwanda 

from 1981 to 2021. Facts from Figure 26 showed that debt service reduced the foreign direct investments of 
Rwanda throughout the period under investigation. This confirms that fear of additional tax payments caused 
by tax increments by the government to service debt obligations discourages foreign investors from coming to 
invest in Rwanda.  



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Figure 27. External debt service and foreign direct investment for Tunisia, 1981 – 2021. 

 
The servicing of debt and the foreign direct investment of Tunisia from 1981 to 2021 is depicted in Figure 

27. Evidence from Figure 27 revealed that debt service decreased foreign direct investments throughout the 
period under review. Foreign direct investment would be diminished because of fear on the part of foreign 
investors that unwarranted debt could result in tax increases to service it.  

 

 
Figure 28. External debt service and foreign direct investment for Zimbabwe, 1981-2021. 

 
Figure 28 indicates the debt service and foreign direct investment trends in Zimbabwe from 1981 to 2021. 

It is worth noting that debt service obligations reduced Zimbabwe’s foreign direct investment throughout the 
period under study. The damaging consequences of high external debt on foreign direct investment through tax 
increases by the government to service debt obligations which foreign investors are not ready to bear confirms 
the problem of debt overhang.  
 

3. Theoretical Framework and Empirical Issues 
Theoretically, the link between external debt and economic growth has diverse explanations. The 

propositions of the Neoclassical, the Keynesian and the Ricardian equivalence theories concerning the 
connection between external debt and economic growth were different. Thus, the theoretical foundation of this 
study would be anchored on the Neoclassical, the Keynesian and the Ricardian Equivalence theories. These three 
perspectives would explain the theoretical connection between our variables of interest. The first theory is the 



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neoclassical theory. This theory proposes that external debt has an unfavourable effect on economic growth. 
This is because it erodes private investment (Diamond, 1965; Panizza & Presbitero, 2013). Investors argued that 
external debt could be used by the government as an excuse for potential increment of taxes. It could also result 
in a rise in interest rates or crises motivated by external debt, which could dampen private investment and 
economic growth.  

In contrast to the neoclassical theory, the second theory is the Keynesian theory. The Keynesian theory 
postulates that growing levels of external debt foster government expenditure, which supports economic growth 
in succession. Thus, external debt increases demand, increasing investment and production. The Ricardian 
Equivalence theorist advanced the third viewpoint on the nexus between external debt and economic growth. 
Barro (1979) advocated this theory and it overruled the Neoclassical and Keynesian standpoints regarding the 
connection between external debt and economic growth. It postulated that there is no connection between 
external debt and economic growth (Barro, 1989). In conclusion, the position of Neoclassical economists is that 
economic growth is affected negatively by external debt. However, the opinion of the Keynesians is that 
economic growth is affected positively by external debt. All the same, the Ricardian equivalence theory 
maintained that external debt exerted neither positive nor negative impacts on economic growth. 

Numerous studies have investigated the connection between external debt and economic growth in 
industrialized and developing countries with different results. For example, Kharusi and Ada (2018) investigated 
the effect of government external debt on Oman’s economic growth between 1990 and 2015 deploying the 
ARDL bounds test method of cointegration. The results demonstrated that external debt hindered economic 
growth. Furthermore, gross fixed capital formation impacted economic growth positively. In a related study, 
Festus and Saibu (2019) used the ARDL test technique to cointegration to investigate the link between external 
debt and economic growth in Nigeria between 1981 and 2016. The results indicated the detrimental effect of 
external debt on economic growth. 

Due to the rise in foreign debt levels of several African nations, Senadza, Fiagbe, and Quartey (2018) 
conducted a related study to examine the relationship between external debt and economic growth in sub-
Saharan Africa (SSA). They achieved this by employing the System Generalized Methods of Moments (GMM) 
and time series data for 39 SSA economies between 1990 and 2013. The findings in line with the assertion of the 
neoclassical economists showed that external debt impedes sub-Saharan Africa’s economies from growing 
economically. The countries were grouped based on the GDP per capita, which had no bearing on the connection 
between external debt and economic growth. The results further indicated that growth and external debt do 
not have a non-linear connection. 

Tefera (2019) examined the effect of external debt on the economic growth of SSA economies utilizing the 
panel threshold model of Hansen (1999) and a panel data group of 41 nations between 2000 and 2017. The 
capacity of the SSA region to repay its external debt was also looked at. The results indicated that the 
relationship between external debt and economic growth is non-linear. Nonetheless, economic growth reacted 
more strongly to negative external debt levels than to positive ones. The findings showed that, in terms of 
external debt as a percentage of GDP, there is just one threshold level in SSA. Beyond this point, which is set 
at 21.78 percent, the level of external debt became unmanageable and began to have a detrimental impact on 
GDP growth. Furthermore, the findings indicated that the external debt of SSA was unsustainable.  

In order to investigate the causal relationship between public and private external debt and economic 
growth in developing economies, Zhang, Dawood, and Al-Asfour (2020) used 18 selected Asian developing and 
transition economies from 1995 to 2019 and the Dynamic Heterogeneous Panel Data methodologies, Pooled 
Mean Group (PMG), robust Cross-sectional augmented Autoregressive Distributed Lag (CS-ARDL), and 
Granger causality test. The results showed that there is a causal relationship between external debt and 
economic growth in the short and long runs, respectively, based on the PMG and CS-ARDL approaches. A 
bidirectional association between total external debt and economic growth, private external debt and economic 
growth and public external debt and economic growth was found by the Granger causality test results. 

Didia and Ayokunle (2020) investigated the effect of public debt on Nigeria’s economic growth from 1980 
to 2016 deploying the Vector Error Correction Model (VECM). For this investigation, public debt was 
decomposed into external debt and domestic debt. The results showed that domestic debt exerted a positive 
impact on economic growth. However, external debt had a negative and insignificant impact on economic 
growth. Ideh and Uzonwanne (2021) in a similar manner analyzed the link between external debt and Nigeria’s 
economic growth from 1985 to 2019 using the OLS methodology. The findings indicated that external debt 
exerted a negative and insignificant effect on economic growth.  In Turkey, Uslu (2021) adopted the ARDL 
bounds test for cointegration and the Toda Yamamoto causality test to investigate the impact of external debt 
on economic growth from 1970 to 2016. The findings indicated that fixed capital stock, external debt, labour 
force and human capital had a positive effect on economic growth respectively. The causality result indicated a 
unidirectional relationship from the labour force and external debt to economic growth respectively. 
Furthermore, the findings revealed a one-way relationship from the labour force to fixed capital stock. Also, a 
one-way link from the labour force to human capital was established.  The results further revealed a 
unidirectional relationship from external debt stock to human capital. Oteng (2022) investigated the impact of 
external debt on Ghana’s economic growth from 1970 to 2019 using the Autoregressive distributed Lag (ARDL) 
model. The results showed that external debt had a negative and insignificant impact on economic growth in 
the long run. However, it exerted a positive and significant impact on economic growth in the short run. Due to 



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the methodologies used and the diverse geographical context of the reviewed empirical literature, mixed results 
were generated. The cross-sectional or panel studies conducted in the context of external debt were sparse. For 
example, Deshpande (1997) used the Ordinary Least Squares (OLS) methodology to execute work on heavily 
indebted economies of Algeria, Argentina, Egypt, Honduras, Cote d’Ivoire, Kenya, Mexico, Morocco, Peru, 
Philippines, Sierra Leone, Venezuela and Zambia from 1971 to 1991.  

The results indicated that in all the economies, investment revealed an upward movement in the short-run. 
However, a downward course manifested with the buildup of debt. In the context of the problems of African 
external debt, Edo (2002) carried out a comparative analysis between Nigeria and Morocco. He deduced that 
external debt was not severely crowding out investment. Schclarek (2004) utilized data from 1970 to 2002 to 
examine the impact of debt on growth for some developing and industrial countries. The findings showed that 
lesser external debts resulted in high economic growth in developing countries. However, the nexus between 
external debt and economic growth in industrial countries was not significant. Using the panel data technique, 
Fincke and Greiner (2015) examined the impact of public debt on the economic growth of seven developed 
economies from 1970 to 2012. Their findings indicated that public debt exerted a negative effect on economic 
growth. Nsonwu (2016) investigated the impact of debt burden on investment and growth in fifteen sub-Saharan 
Africa (SSA) countries of Angola, Burundi, Cameroon, DR Congo, Ethiopia, Ghana, Kenya, Malawi, Mali, 
Mozambique, Nigeria, Rwanda, Tanzania, Uganda and Zimbabwe from 1998 to 2013. Kempa and Khan (2016) 
utilized the extended Vector autoregressive (VAR) methodology to examine the causal link between public debt 
and economic growth in G7 economies. The findings showed a unidirectional relationship from economic 
growth to public debt. In another study, Gomez-Puig and Sosvilla-Rivero (2015) investigated the impact of 
public debt on the economic performance of European Economic and Monetary Union (EMU) economies. The 
result of the long run indicated that debt exerted a negative impact on economic growth. On the other hand, 
there is a likelihood of a positive effect in the short-term but it is contingent on whether debt is allocated to 
productive or unproductive outlay. Saungweme (2020) used the ARDL bounds test to cointegration and time 
series data from 1970 to 2017 to investigate the public debt, public debt service and economic growth connection 
in Southern African countries of South Africa, Zambia and Zimbabwe. In addition, Fosu (1996) employed OLS 
to explore the impact of public external debt on SSA economies from 1970-1986. He concluded that the debt 
burden in SSA accounted for a 33% drop in economic growth. 

Most of these cross-sectional studies dwelt on public debt. In addition, some of the studies combined 
different economies and regions of the world. The studies that dwelt on external debt only were Edo (2002) and 
Fosu (1996). From the perspective of cross-section studies that were conducted in Africa with a focus on external 
debt, Fosu (1996) used the OLS which would result in biased and inconsistent results due to the bidirectional 
causality between public external debt and economic growth. Again, the scope of the study was short from 1970-
1986. Furthermore, limited studies employed panel data in Africa. Our study would use extended time series 
data and improve on the previous methodology by employing the Heterogeneous Dynamic Panel Data 
Modelling Approach – Pooled Mean Group (PMG) to examine the effect of external debt on the economic 
growth of Ghana, Kenya, Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021. To the best of 
our knowledge, this is the first attempt to study this group of countries using panel ARDL, PMG technique. 
 

4. Methodology and Model Specification 
The study investigated the connection between external debt and economic growth of Ghana, Kenya, 

Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021. The data was derived from the World 
Bank (WB) World Development Indicators (WDI) database. The economies utilized for this study and period 
of estimation were informed by data availability. Moreover, numerous Least Developed Countries (LDCs) were 
affected by the debt crisis that started at the beginning of the 1980s. Also, the phase of the Structural Adjustment 
Programme (SAP) and the global financial crisis of 2008 were incorporated into our focus. The debt crisis 
informed the choice of 1981 as a start date. Following the study of Mavhinga (2015) with some modifications, 
the model is specified as follows: 

     (1) 

𝑊ℎ𝑒𝑟𝑒: 

∝0,  ∝1  𝑎𝑛𝑑 ∝2= 𝑃𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟𝑠 𝑖𝑛 𝑡ℎ𝑒 𝑚𝑜𝑑𝑒𝑙 

𝑙𝑛𝑅𝐺𝐷𝑃𝑃𝐶𝑖𝑡 = 𝐿𝑜𝑔𝑎𝑟𝑖𝑡ℎ𝑚 𝑜𝑓 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃 𝑝𝑒𝑟 𝑐𝑎𝑝𝑖𝑡𝑎 𝑓𝑜𝑟 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 𝑖 𝑎𝑡 𝑡𝑖𝑚𝑒 𝑡 

𝑙𝑛𝐸𝑋𝑇𝐷𝑖𝑡 = 𝐿𝑜𝑔𝑎𝑟𝑖𝑡ℎ𝑚 𝑜𝑓 𝑒𝑥𝑡𝑒𝑟𝑛𝑎𝑙 𝑑𝑒𝑏𝑡 𝑎𝑠 𝑎 𝑠ℎ𝑎𝑟𝑒 𝑜𝑓 𝐺𝑁𝐼 𝑓𝑜𝑟 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 𝑖 𝑎𝑡  

𝑡𝑖𝑚𝑒 𝑡 

𝑙𝑛𝐷𝐸𝐵𝑇𝑆𝑖𝑡 = 𝐿𝑜𝑔𝑎𝑟𝑖𝑡ℎ𝑚 𝑜𝑓 𝑒𝑥𝑡𝑒𝑟𝑛𝑎𝑙 𝑑𝑒𝑏𝑡 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑓𝑜𝑟 𝑐𝑜𝑢𝑛𝑡𝑟𝑦 𝑖 𝑎𝑡 𝑡𝑖𝑚𝑒 𝑡 

𝜀𝑖𝑡 = 𝐸𝑟𝑟𝑜𝑟 𝑡𝑒𝑟𝑚 

All the variables were logged and the logarithm symbol is represented by ln. The country and time are 
denoted by i and t respectively. Before the estimation of the growth model, we employed the Im, Pesaran and 
Shin (IPS), ADF-Fisher Chi-square, Levin, Lin, and Chu (LLC) and PP-Fisher Chi-square panel unit root tests 
to examine the time series features of the data. The analysis was executed using the Heterogeneous Dynamic 



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Panel Data Modelling Approach, PMG introduced by Pesaran, Shin, and Smith (1999). The E-Views software 
was employed for the estimation of the statistical process of the panel ARDL. 
The standard model for the panel ARDL technique is specified in Equation 2 as follows: 

     (2) 

𝑊ℎ𝑒𝑟𝑒: 
𝑝 = 𝑜𝑝𝑡𝑖𝑚𝑎𝑙 𝑎𝑢𝑡𝑜𝑟𝑒𝑔𝑟𝑒𝑠𝑠𝑖𝑣𝑒 𝑙𝑎𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 

𝑞 = 𝑜𝑝𝑡𝑖𝑚𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑙𝑎𝑔 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑟𝑒𝑔𝑟𝑒𝑠𝑠𝑜𝑟𝑠 

𝑖 = 1,2, … ,7 

𝑡 = 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑦𝑒𝑎𝑟𝑠 (1981 − 2021) 

𝜀𝑖𝑡 = 𝑒𝑟𝑟𝑜𝑟 𝑡𝑒𝑟𝑚 
The reparameterization of Equation 2 yields Equation 3. 

    (3) 

𝑊ℎ𝑒𝑟𝑒: 
𝜑𝑖 = 𝑠𝑝𝑒𝑒𝑑 𝑜𝑓 𝑎𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑔𝑟𝑜𝑢𝑝 

𝛾1 𝑎𝑛𝑑 𝛾2 = 𝑐𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑙𝑜𝑛𝑔 – 𝑟𝑢n 

𝜔𝑖𝑗 = 𝑠ℎ𝑜𝑟𝑡 − 𝑟𝑢𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 𝑜𝑓 𝑡ℎ𝑒 𝑙𝑎𝑔𝑔𝑒𝑑 𝑑𝑒𝑝𝑒𝑛𝑑𝑒𝑛𝑡 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 

𝜔1𝑖𝑗
∗  𝑎𝑛𝑑 𝜔2𝑖𝑗

∗∗ = 𝑠ℎ𝑜𝑟𝑡 − 𝑟𝑢𝑛 𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟𝑠 𝑓𝑜𝑟 𝑜𝑡ℎ𝑒𝑟 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝑠 

 
 

Table 1. Panel unit root test results. 

Variable ADF-fisher IPS LLC PP-Fisher I(d) 

Level First 
difference 

Level First 
difference 

Level First 
difference 

Level First 
difference 

 

lnRGDPPC 2.1956 90.6271*** 3.4258 -8.5382*** 0.3806 -7.1556*** 1.5584 146.758*** I (1) 
lnEXTD 8.6261 47.7788*** -0.0225 -4.9931*** -0.0888 -4.4835*** 8.8009 104.158*** I (1) 
lnDEBTS 6.3936 97.5917*** 1.6768 -9.1314*** 0.7614 -8.3917*** 8.9067 186.913*** I (1) 

Note: *** indicate statistical significance at the 1% level. 

 
5. Empirical Results and Discussions 

The results of the ADF-Fisher, IPS, LLC and PP-Fisher unit root test in Table 1 revealed that all the 
variables under investigation were stationary at first difference. This sort of integration supports the application 
of the panel ARDL modelling method. The ARDL model can investigate causal relationships at diverse orders 
of stationarity. Also, the estimate of the long-run for the ARDL model is consistent whether the explanatory 
variables are stationary at I(0), I(1) or a mixture of the two.   
 

Table 2. Long-run coefficients results. 

lnEXTD lnDEBTS 

-1.2950 0.5868 
[-2.8693***] [5.0582***] 

(0.0045) (0.0000) 
Note: Probability values are in bracket - ( ). 

t-statistics are in []. 
*** indicate statistical significance at the 1% level. 

 
The results of the long-run coefficients are indicated in Table 2. The findings revealed that external debt 

had a negative impact on the economic growth of the group of countries under study. This result confirms the 



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proposition of the neoclassical scholars that debt is detrimental to growth. Thus, external debt has adverse 
effects on the economic growth of these bands of countries. Hence, there is evidence of debt overhang problems 
in these economies. The finding agrees with the submissions of Kharusi and Ada (2018);  Senadza et al. (2018) 
and Festus and Saibu (2019). It, however, violated the findings of Uslu (2021). On the other hand, external debt 
services exerted a positive impact on the economic growth of these groups of economies. This implies that debt 
service payments in these groups of economies have a favourable impact on their economies. Thus, a 0.59 per 
cent per unit rise in debt service would increase economic growth. Thus, the crowding-out effect theory does 
not hold in these economies. This result finds an advocate in Mavhinga (2015). Nevertheless, it contravenes the 
results of Nsonwu (2016); Oteng (2022); Atoullo (2019); Saungweme (2020) and Elikana (2019). 
 

Table 3. Short-run coefficients results. 

Dependent variable: lnRGDPPC 

Variable Coefficient Std. error t-statistic Prob. 

Δ(lnRGDPPC(-1)) 0.0576 0.1181 0.4876 0.6263 

Δ(lnEXTD) -0.0773 0.0270 -2.8613*** 0.0046 

Δ(lnDEBTS) 0.0258 0.0236 1.0949 0.2746 

C 0.0901 0.0377 2.3881** 0.0177 

ECMt-1 -0.0210 0.0112 -1.8751* 0.0619 
Note: ***, ** and * indicate statistical significance at the 1%, 5% and 10% levels of significance, respectively. 

 
The findings of the short-run dynamics are presented in Table 3. The findings demonstrated that changes 

in external debt had a negative effect on the GDP per capita of the selected economies. This result is consistent 
with the findings of the long run. However, change in external debt service exerted a positive and insignificant 
effect on economic growth. The Error Correction Terms (ECT) had the right sign and was significant. The 
ECT coefficient value of -0.0210 implies that about 2.1 per cent of departures from long-run equilibrium are 
corrected in 48 years. Thus, this speed of adjustment is considered very low. We can draw some inferences 
owing to the negative and significant outcome of the ECT.  It indicates that there is a long-term correlation 
among the variables. Also, it shows evidence of joint causality. Hence, EXTD and DEBTS jointly Granger cause 
RGDPPC in the long run. Nevertheless, the short-run coefficients per economy represented in Table 4 indicated 
that except for Rwanda, where the ECT was negative and insignificant, the ECT in the remaining economies 
was negative and significant. 

 



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Table 4. Panel ARDL estimations results for short-run coefficients by country. 

Country: Ghana Kenya Morocco Nigeria Rwanda Tunisia Zimbabwe 

Variable Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient Coefficient 

Δ(lnRGDPPC(-1)) 0.3482*** 0.1702*** -0.4934*** 0.3598*** -0.0813*** -0.1428*** 0.2424*** 

Δ(lnEXTD) -0.0136*** -0.0207*** -0.1340*** -0.0551*** -0.1324*** -0.0026 -0.1824*** 

Δ(lnDEBTS) -0.0057*** 0.0143*** -0.0075*** -0.0005*** 0.1660*** 0.0105*** 0.0035*** 

C 0.1486*** 0.2891*** 0.0329*** 0.0293* 0.0066*** 0.0873 0.0370* 
ECMt-1 -0.0066*** -0.0149*** -0.0034*** -0.0003*** -0.0006 -0.0799*** -0.0417*** 

Note:  *** and * indicate statistical significance at the 1% and 10% levels of significance, respectively. 



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Table 5. Results of Toda and Yamamoto multivariate causality test. 

Dependent variable Sources of causation 

LNRGDP 

𝜒2 

LNEXTD 

𝜒2 

LNRGDP - 1.2866 
LNEXTD 0.0064 - 

 
Table 6. Results of Toda and Yamamoto multivariate causality test. 

Dependent variable Sources of causation 

LNRGDP 

𝜒2 

LNDEBTS 

𝜒2 
LNRGDP - 0.4367 
LNDEBTS 3.3250 - 

 
The findings of the Toda and Yamamoto multivariate causality tests are indicated in Tables 5 and 6. The 

result in Table 5 revealed that there is no causal link between external debt and economic growth. This suggests 
that the policy objectives of external debt can be pursued separately from that of economic growth in this group 
of economies in Africa. This result agrees with the submissions of Iitula (2018). However, the findings of Musa 
(2015); Zhang et al. (2020) and Uslu (2021) violate it. The results of Table 6 also indicated that there is no causal 
link between external debt service and economic growth. This implies that the policy objectives of servicing of 
debt can further be pursued separately from that of economic growth. This result is in line with the submissions 
of Saungweme (2020) and Musa (2015). 

 

6. Conclusion and Recommendations 
The outcomes of this study supported the debt overhang effect theory by showing that the relationship 

between external debt and economic growth was negative. Hence, the debt overhang hypothesis is valid for 
these economies. This indicates that external debt has an adverse effect on these countries’ economic growth. 
Also, debt service exerted a favourable effect on economic growth. This indicates that the crowding-out effect, 
time and again branded as the crowding-out hypothesis, is absent in these economies. Based on the outcomes of 
this study, the following were recommended: The capacity of these economies in terms of revenue generation 
and debt servicing should be reinforced by their governments through the channelling of external debt into 
long-term productive investments like industrialization among others for the realization of positive economic 
growth. The dependence on borrowed foreign funds could be reduced in the future through diversification of 
exports, improvement in internal mobilization of revenue and generation of sufficient returns to repay the 
external debt. Also, the policies on debt servicing in these economies should be sustained since it is yielding the 
desired results. Furthermore, the deficit gap could be filled through the introduction and execution of revenue-
boosting strategies by policymakers as an alternative to borrowing. Thoroughly assessed projects of high 
significance should be the only yardstick for the contraction of foreign loans in these economies. As was stated 
by Iitula (2018) ‘’effective and efficient utilization of public resources is needed to ensure that the future 
generation's welfare or economic production is not being mortgaged in continuous indebtedness’’. The 
governance question in these economies should be critically addressed. Sometimes, African leaders contract 
external loans for unproductive reasons and most of the borrowed funds are diverted to private accounts in 
Western countries. Also, the policy objectives of external debt can be pursued separately from that of economic 
growth in this group of economies in Africa. Furthermore, the policy objectives of debt service can be pursued 
separately from those of economic growth. 

 

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https://doi.org/10.17811/ebl.4.4.2015.137-150
https://doi.org/10.1016/s0304-4076(99)00025-1
https://doi.org/10.46827/ejefr.v5i2.1156
https://doi.org/10.1080/13504851.2015.1080797
http://dx.doi.org/10.11130/jei.2018.33.1.1141
https://doi.org/10.1007/BF03399388
https://doi.org/10.2307/2670182
https://doi.org/10.3386/w15639
https://doi.org/10.25103/ijbesar.111.07
https://doi.org/10.33206/mjss.799985
https://doi.org/10.13106/jafeb.2020.vol7.no11.607

