External debt and economic growth in Sub-Saharan Africa: does heterogeneity in the quality of public sector management make a difference?

This study empirically examines the effect of external debt on economic growth, taking into account heterogeneity in public sector management (PSM) across 31 selected sub-Sahara African (SSA) countries spanning 2005 to 2017. In this study, we contributed to existing studies by examining how differences in PSM quality complement external debt to influence economic growth. We employ the system-generalized method of moment (system-GMM) and the panel smooth transition regression (PSTR) methods for the analysis. The results without differences in PSM quality show that external debt has a significant negative effect on economic growth in SSA. However, the effect of external debt on economic growth tends to be positive for SSA countries with strong PSM quality when external debt interacts with PSM quality. Furthermore, the results show that countries with strong PSM quality experienced higher economic growth than those with weak PSM quality. The PSTR also showed strong evidence of a nonlinear relationship between external debt and economic growth and estimated the indebtedness threshold value at 45% for the selected SSA countries. The implication of the findings calls for governments in SSA to strengthen the quality of public sector management via structural reforms aimed at public sector reform, tax reforms and strengthening debt management capacity to ensure positive growth effects of external debt.

Financial sector development and natural resource rents: the role of institutions in Sub-Saharan Africa.

Institutions are important in analyzing the relationship between natural resource rents and financial sector development. The existing research has not unanimously established the role played by the quality of institutions on the impact of natural resource rents on financial sector development. The financial-resource nexus literature has largely ignored the role of institutions and the sensitivity of the relationship to the choice of proxies for financial sector development. This study provides new empirical evidence on the interactive role of institutions in the relationship between natural resource rents and financial sector development for 25 Sub-Saharan African countries from 1996 to 2017. To that end, we employ a dynamic system GMM estimator with endogeneity-purging efficiency. Our results show that a huge improvement in legal and political institutions is required to boost the impact of natural resource rents on Sub-Saharan Africa's financial sector development. Our results are robust to the use of alternative measures of institutions. We also found that the impact of natural resource rents on financial sector development is unclear as this depends on how financial sector development is measured. Implications of the findings for academics, policymakers and regulators are provided.