The External Debt Burden and Economic Growth in the 1980s: Evidence from sub-Saharan Africa

Abstract

ABSTRACT The study estimates the effect of external debt on economic growth in sub-Saharan Africa (SSA) during the 1980s when debt became a burden, and a majority of SSA countries defaulted. By using 1980–1990 World Bank data across 35 SSA countries in an augmented production function framework, the study finds that net outstanding debt was deleterious to economic growth for given levels of production inputs, whereas SSA's growth would have been 50% higher without the external debt burden. Meanwhile, there is little evidence of a negative correlation between debt and investment levels. External debt may still be burdensome even if it exerts little influence on the level of investment.