This study examines the relationship between external debt and economic growth in the West African Monetary Zone (WAMZ). Scope: The study covered the period from 2000 to 2021, encompassing The Gambia, Ghana, Guinea, Nigeria, Sierra Leone, and Liberia. Methods: This study draws upon the debt-overhang theory, emphasizing adverse consequences excessive foreign debt has on the economic prospects. Utilizing a comprehensive model that considers real GDP as the dependent variable; external debt as a percentage of GDP as primary independent variable, along with control variables like trade, inflation, government expenditure, and population growth. Results: The analysis reveals that high levels of foreign debt impact the growth of the economy negatively in the WAMZ. Conclusions: The study suggests the need for policymakers in the WAMZ to exercise caution when accumulating external debt, prioritizing productive investments that can generate income and reduce debt service burdens. Emphasis should be placed on investing in trade and infrastructure, as these areas have positive spillover effects on economic growth. Practical implications: Improving institutional quality, reducing corruption, and controlling inflation are key steps to attract investment and enhance the business environment in the region, ultimately fostering economic growth.
External debt, Economic Growth, West African Monetary Zone
Unique Paper ID: 1105
Publication Volume & Issue: VOLUME 4 , ISSUE 2
Page(s): 5-11