The Impact of External Debt on Economic Growth in some Selected East African Countries: Panel Data Approach
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Date
2016-06
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Addis Ababa University
Abstract
The study aims at understanding the effect of external debt on economic growth in five East African countries namely, Ethiopia, Kenya, Tanzania, Uganda, and Rwanda, by using data of about 30 years starting from 1980-2014.Two panel data methods (fixed and random variables) to conduct this part of the test and find clear support for the hypothesis. In order to compare the findings of the fixed and random effect models, we also conduct the Hausman test, and find select for the fixed effect model. The fixed effect results of external debt on economic growth revealed that external debt expansion has a negative and insignificant effect on economic growth of the East African countries.
The study external debt of the countries is not significantly related to the economic growth measured in terms of real GDP per capita; however, the sign of the coefficient is negative with no statistical significance. Also found that macroeconomic factors, specifically, inflation rate and exchange rate did have positive and significant effect on the economic growth. The interest payment did negatively and significantly affects economic growth of the East African countries while a depreciation of local currencies led to an increase in public debt. The investment and Term of trade did have positive and significant effect on the economic growth
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External Debt on Economic Growth