The impact of external debt stock on economic growth: ethical dilemmas and evidence from East African community bloc

IF 1.7 Q2 ECONOMICS International Journal of Ethics and Systems Pub Date : 2024-09-16 DOI:10.1108/ijoes-06-2024-0178

Osman Sayid Hassan Musse, Ashurov Sharofiddin, Mohamud Ahmed Mohamed

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Abstract

Purpose

This study aims to investigate the effect of total external debt stock on economic growth of the East African Community (EAC) bloc.

Design/methodology/approach

The study applies balanced panel data for seven of the eight EAC member states, spanning the period from 2013 to 2022, and uses panel data models, i.e. pooled ordinary least squares, random and fixed effects models.

Findings

The findings reveal a significant positive correlation between total external debt stock and economic growth, supporting the economic theory that reasonable levels of borrowing can stimulate economic growth, particularly when funds are channeled into productive activities. However, the relationship between foreign direct investment and economic growth lacks statistical significance, indicating challenges in attracting sufficient investment for substantial growth within the EAC bloc. Trade openness shows a negative and statistically insignificant correlation with economic growth. Additionally, the study finds a positive and significant correlation between the unemployment rate and economic growth, while the inflation rate demonstrates a positive but statistically insignificant relationship with economic growth.

Practical implications

The study recommends improvements in debt management practices, enhancements in the business environment, infrastructure investments, a reassessment of trade policies and initiatives to stimulate job creation and SME development. More importantly, governments should focus on expanding the tax base in ways that stimulate growth, thereby reducing reliance on external debt.

Originality/value

This study is unique as it revisits the effect of external debt stock on economic growth following Somalia’s recent membership in EAC bloc.

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外债存量对经济增长的影响：东非共同体集团的伦理困境与证据

本研究旨在调查外债存量总额对东非共同体（EAC）集团经济增长的影响。研究采用了东非共同体八个成员国中七个国家的平衡面板数据，时间跨度为 2013 年至 2022 年，并使用了面板数据模型，即集合普通最小二乘法、随机效应和固定效应模型。研究结果研究结果表明，外债存量总额与经济增长之间存在显著的正相关关系，这支持了合理的借贷水平可以刺激经济增长的经济理论，尤其是当资金用于生产活动时。然而，外国直接投资与经济增长之间的关系缺乏统计意义，这表明东非共同体集团在吸引足够投资以实现大幅增长方面面临挑战。贸易开放度与经济增长呈负相关，在统计上不显著。此外，研究还发现失业率与经济增长之间存在显著的正相关关系，而通货膨胀率与经济增长之间存在显著的正相关关系，但在统计意义上并不显著。更重要的是，政府应注重以刺激经济增长的方式扩大税收基础，从而减少对外债的依赖。独创性/价值本研究的独特之处在于，它重新审视了索马里最近加入东非共同体集团后外债存量对经济增长的影响。

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来源期刊

International Journal of Ethics and Systems ECONOMICS-

CiteScore

4.40

自引率

11.10%

发文量

期刊介绍： The International Journal of Ethics and Systems (formerly named Humanomics, the International Journal of Systems and Ethics) is a multidisciplinary journal publishing peer review research on issues of ethics and morality affecting socio-scientific systems in epistemological perspectives. The journal covers diverse areas of a socio-scientific nature. The focus is on disseminating the theory and practice of morality and ethics as a system-oriented study defined by inter-causality between critical variables of given problems.