Effect of Total Debt Service, Capital stock and Inflation on Economic Growth in SSA: Difference GMM Analysis

International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue III, March 2021 | ISSN 2321–2705

Effect of Total Debt Service, Capital stock and Inflation on Economic Growth in SSA: Difference GMM Analysis

Wycliffe Mugun
Department of Economics
Kaimosi Friends University College,Kenya

Abstract:-Over the past decades, the 1980s to mid-2005 rising debt levels raised concerns for many developing Nations. This was evidenced by the High Indebted Poor Countries Initiativean emblem of African countries struggle to tackle the debt problem. However, owing to the fact that there are limited studies on total debt service, various studies indicate divergent views on the effect of total debt service on economic growth. For this reason, it is not clear whether or not total debt service affect economic growth in Sub-Saharan Africa. The main objective of this study was to investigate the effect of total debt service on economic growth in Sub-Saharan Africa. The random effect model results indicated that total debt service had positive and statistically significant relationship with economic growth in SSA. One step difference Generalized Method of Moments results showed that total debt service had a positive and insignificant relationship with economic growth, capital stock had positive and statistically significant effect on economic growth in SSA while inflation had positive and statistically insignificant relationship with economic growth. The study recommends that SSA countries should exhibit restrain in contracting new external debt since total debt servicing was associated with decline in economic growth and also the governments should establish and adopt an optimal balance between external and domestic debt to maintain steady economic growth. The study concluded that SSA to actively engage in international trade since it facilitates technology transfer, exchange of information and opportunities to realize economies of scale and high volume of investment.

Keywords: Total debt service, economic growth, Sub-Saharan Africa

INTRODUCTION

1.0 Background of the study

Debt service refers to the portion of national budget funds allocated for paying country’s debt obligation, including the principal payments and interest payments,(Republic of Kenya, 2014). High cost of debt servicing has an implication on the social and economic sectors investments and ultimately on the overall output of an economy. The overall output of the economy can be disaggregated into four components; private consumption, private investment, government spending and net exports, (Njuguna,2008).An assessment of how well the country is doing in reaching key objectives of government policy in terms of variables such as economic

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