Public Debt and Macroeconomic Stability among Sub-Saharan African countries: A System GMM Test Approach
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Date
2024-02
Authors
Sumba, Jerry Ogutu
Ochenge, Rogers
Mugambi, Paul
Musafiri, Collins Muimi
Journal Title
Journal ISSN
Volume Title
Publisher
Cogent Economics & Finance
Abstract
This study examined the effect of public debt on macroeconomic stability among 45
sub-Saharan African (SSA) countries for the period 2005–2022 using the two-step system Generalized Method of Moments (GMM). The study disaggregated public debt
into domestic and foreign borrowing and determined the effect of each on inflation
and economic growth. In agreement with recent studies, we found compelling evidence of negative effect of both domestic and foreign borrowing on economic
growth and a positive effect on inflation among SSA countries. The empirical results
reveal that a unit increase in domestic borrowing reduces economic growth by 0.06
percent and raises inflation by about 0.14 percent, while the same increase in foreign
borrowing reduces economic growth by 0.01 percent and increases inflation by 0.05
percent holding other factors constant. These results imply that increase in public
debt causes macroeconomic instability, and that domestic borrowing has a relatively
larger impact on macroeconomic variables compared to foreign borrowing. The policy
implication of the current study is that SSA countries should avoid excessive borrowing by operating a fiscal deficit within individual country threshold limits to contain
growth in public debt. The SSA countries should also ensure borrowed funds are
channeled into projects that bring revenue and other investment opportunities to
amortize the debt stock.
Description
Article
Keywords
Public debt, economic growth, inflation rate, macroeconomic, domestic borrowing, foreign borrowing, system GMM
Citation
Sumba, J. O., Ochenge, R., Mugambi, P., & Musafiri, C. M. (2024). Public debt and macroeconomic stability among sub-Saharan African countries: a system GMM test approach. Cogent Economics & Finance, 12(1), 2326451.