Quartey, P.Senadza, B.Fiagbe, A.K.University of Ghana, College of Humanities, School of Social Sciences, Department of Economics2016-06-132017-10-142016-06-132017-10-142015-07http://197.255.68.203/handle/123456789/8399Thesis (Mphil) - University of Ghana, 2015Many economies in Sub-Saharan Africa have been experiencing high external debt stocks over the past three or so decades, thereby deepening the problem of debt burden in the Region. Growth performance, however, remains relatively moderate over the years. The relationship between economic growth and external debt as espoused in theoretical and empirical literature remains unclear. Whilst a school of thought postulate that external debt supplements savings and investment, and hence promotes economic growth, others claim that external debt serves as a substitute to savings and investment and hence impedes economic growth. Moreover, some posit that there is an optimal level of debt that promotes growth and beyond that threshold, debt is deleterious to growth. Earlier studies on debt-growth nexus have suggested controversy in empirical literature. Most studies concluded that debt negatively affects economic growth, some aver that debt positively affects growth whilst others claim that debt has no influence on economic growth but most of these studies focused on the developed economies. Some studies on Sub-Saharan Africa concluded that external debt is deleterious to growth, but these studies are very scanty. This study uses a sample of 39 SSA countries for 24 years (1990-2013) to examine the effect of external debt on economic growth in SSA. System GMM estimation technique was adopted in the empirical analysis to obtain robust estimates of the effect of external debt on economic growth. The study accounts for unobserved country-specific time invariant effects, time series variations in the data, controls for endogeneity, autocorrelation, heterogeniety and other biases that may characterize panel estimation model. The estimation results reveal that external debt negatively affects economic growth in SSA. Moreover, country classification based on the level of per capita income does not significantly influence the external debt-growth relationship in the region. Furthermore, the estimation result does not support a non-linear relationship between external debt and economic growth. The study shows that control variables such as labour force, investment, and export growth all have positive and significant effects on economic growth. The study found that the Direct Effect of Debt Hypothesis (DEDH) holds for SSA. The DEDH postulates that external debt discourages long term investments that is crucial for growth. It is hence recommended that governments of SSA countries should channel borrowed external funds into long-term investment projects to make up for the investment loss, which also would generate sufficient future cash flow for amortization of the debt, negotiate with creditors for more debt relief programmes, and pursue export-led growth strategy and policies that would solve structural imbalances in their economies, improve their tax efforts, and maintain macroeconomic stability.xvii, 129p. ill.enExternal DebtEconomic GrowthDebt StockLabor ForceInvestmentThesisUniversity of Ghana