External Debt and Economic Growth in West Africa
Razak Oluwadare Abimbola
Student, Department of Banking and Finance, College of Business and Management Studies, Igbinedion University, Okada, Edo State, Nigeria
Stephen Ebhodaghe Ughulu
Associate Professor, Department of Banking and Finance, College of Business and Management Studies, Igbinedion University, Okada, Edo State, Nigeria
ABSTRACT:
This study examines the impact of external debt on economic growth in West Africa, focusing on Côte d’Ivoire, Ghana, and Nigeria from 1990 to 2023. Using the Autoregressive Distributed Lag (ARDL) model, the analysis reveals that while external debt supports short-term growth, it hinders long-term economic performance when debt servicing becomes substantial. Specifically, a 1% increase in external debt initially boosts GDP by 0.73%, but sustained debt servicing reduces this benefit, as shown by a negative ARDL coefficient of -1.313 (p < 0.0000) for debt servicing, with average costs of $1,120.28 million limiting resources for development. Gross fixed capital formation positively impacts growth, with a coefficient of 0.483 (p < 0.0000) and an average value of $25,206.97 million, underscoring the role of infrastructure investment. Inflation, which fluctuated widely from -1.11% to 72.84%, generally constrains growth at high levels, indicated by an ARDL coefficient of -8.641 (p < 0.0000), though it can foster economic activity at moderate rates. These findings suggest that while external debt can drive growth, sustainable economic stability in West Africa requires prudent debt management, balanced debt servicing, and continued investments in productive assets. Effective debt and capital investment policies can transform external debt into a development catalyst, ensuring long-term economic resilience in West Africa.
Published in: International Journal of Research in Interdisciplinary Studies (Volume 2, Issue 10, October 2024)
Page(s): 70-79
Date of Publication: 29/10/2024
Publisher: IJRIS
Cite as:
Razak Oluwadare Abimbola, Stephen Ebhodaghe Ughulu, “External Debt and Economic Growth in West Africa,” in International Journal of Research in Interdisciplinary Studies, vol. 2, no. 10, pp. 70-79, October 2024.