Public debt and economic growth in the East African Community.
Kosimbei, G. K.
Kwoba, Pauline L.
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Public debt is among the main macroeconomic indicators that constitutes a country’s image in international markets and is an inward foreign direct investment flow determinant. A sound public debt management leads to economic growth and stability by mobilizing resources with low borrowing costs as well as limiting the financial risk exposure. The main objective of the study was to analyze the impact of public debt on economic growth in the East African community. Economic growth measured by GDP per capita growth was the dependent variable while gross fixed capital formation, labor force and public debt (both external and domestic) were explanatory variables. The study examined data for 24 years from 1990-2013 for EAC countries. Random effects model was adopted as per the results of the Hausman test. External debt was found to have a negative significant effect on economic growth while Gross fixed capital formation had a positive significant effect on economic growth. The study recommends that relevant policies that enhance gross capital formation and promote reduction of debt burden be adopted for sustainable growth in the EAC.