EMPIRICAL EVALUATION OF THE DEBT OVERHANG AND VICIOUS CYCLE HYPOTHESIS IN SUB-SAHARAN AFRICAN COUNTRIES
Abstract
This study aims to empirically evaluate the debt overhang and vicious cycle hypothesis in sub-Saharan African countries by examining the relationship between debt and macroeconomic variables. The model used in this study includes the growth rate of GDP, government consumption, inflation rate, financial development index, and exchange rate as independent variables, while debt serves as the dependent variable. The study used a panel data analysis covering 15 sub-Saharan African countries over the period 2007-2021. The results indicate that government consumption and financial development index have a positive and significant effect on debt, while the growth rate of GDP, inflation rate, and exchange rate have a negative and significant effect. These findings support the debt overhang and vicious cycle hypothesis, which suggests that high levels of debt can lead to lower economic growth and create a vicious cycle of debt accumulation.
Downloads
References
Aizenman, J., & Noy, I. (2006). FDI and trade—Two-way linkages? The Quarterly Review of Economics and Finance, 46(3), 317-337.
De Nicolò, G., Laeven, L., & Ueda, K. (2008). Corporate governance quality: Trends and real effects. Journal of Financial Intermediation, 17(2), 198-228.
Sala-i-Martin, X. (1997). I just ran two million regressions. The American Economic Review, 87(2), 178-183.
Rajan, R. G., & Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88(3), 559-586.
Krugman, P. (1989). Balance sheets, the transfer problem, and financial crises. In Developing country debt and economic performance, Volume 1: The international financial system (pp. 53-74). University of Chicago Press.
Roubini, N., & Sala-i-Martin, X. (1992). Financial repression and economic growth. Journal of Development Economics, 39(1), 5-30.
Kose, M. A., Prasad, E. S., & Terrones, M. E. (2003). Financial integration and macroeconomic volatility. IMF Staff Papers, 50(1), 119-142.
Easterly, W., Kremer, M., Pritchett, L., & Summers, L. H. (1993). Good policy or good luck? Country growth performance and temporary shocks. Journal of Monetary Economics, 32(3), 459-483.
Akinlo, A. E. (2020). Debt Overhang and Economic Growth Nexus in Africa. Journal of African Business, 21(3), 324-346.
Asongu, S. A. (2021). Debt Sustainability and the COVID-19 Pandemic in Africa: Insights from Updated Institutional Quality Data. Journal of African Business, 22(1), 56-70.
Boamah, N. A., Du, J., & Lu, W. (2019). The impact of debt overhang on investment in sub-Saharan African countries. Economic Analysis and Policy, 62, 184-194.
Keho, Y. (2019). External debt overhang and growth in sub-Saharan Africa: Evidence from threshold regression analysis. Journal of African Business, 20(3), 291-312.
Mebane, D. F., &Debrah, K. (2021). Debt Overhang, Political Uncertainty and Investment Decisions in Ghana. International Journal of Finance & Banking Studies, 10(2), 94-111.
Sila, U., &Muathe, S. (2020). Debt overhang and macroeconomic performance in Africa. International Journal of Emerging Markets, 15(3), 582-603.
Taleb, A. M., &Mutayoba, E. (2021). Sovereign debt, growth and inequality in Africa: An empirical investigation. Journal of Public Affairs, e2663.
Copyright (c) 2023 Udokang, Nsisong Boniface, Saburi. G. Olafuyi
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Author(s) and co-author(s) jointly and severally represent and warrant that the Article is original with the author(s) and does not infringe any copyright or violate any other right of any third parties and that the Article has not been published elsewhere. Author(s) agree to the terms that the GPH Journal will have the full right to remove the published article on any misconduct found in the published article.
