ABSTRACT
Many researches had done by others on analyzing the relationship between debt and economic growth. However, little attention has been paid to the econometric analysis of the dynamics of economic growth, debts and budget deficits of Sub-Saharan Africa (SSA). The main purpose of this paper is to re-examine the relationship between debt and growth for SSA, by using Granger causality to test between debts, economic growth and budget deficit. In addition, we will be using the Vector Error Correction Model (VECM) and Augmented Vector Autoregressive (VAR) to test the presence of co-integration. <...To be continued…>
Introduction
It will not be surprising that burden of debt will have a major influence the economic growth. Nonetheless, both developed countries and developing countries are continuously financing themselves through debts, as for instance, government debt, public debt and external debt. Back in 2005, G8 summit was held at Gleneagles, all the following meetings including the international community had agreed to further the debt cancelation to the HIPCs. As a result, the Multilateral Debt Relief Initiative (MDRI) was introduced as a new policy tool to provide additional support and financing to the world's poorest and most indebted countries. All countries reaching completion point under the HIPC Initiative will receive up-front and irrevocable cancelation of their external debt owed to the World Bank, the African Development Bank and the IMF (International Development Association and International Monetary Fund, 2007). Up-to-date, in May 2010, United State has accumulated to a staggering level of debt, US$ 1300 billion, which is considered as hazardous towards the economy as a whole. Besides that, Europe de...
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...f several debts and deficit on economic growth. Thus, examining the causality between budget deficits and growth is of great interest for policy purposes. If deficit affects economic growth negatively, then the deficit target within the SSA is relevant. Alternatively, if causality runs from growth to deficit, then it becomes difficult to achieve a deficit target, as it depends on economic activity and not only on policy decisions. Lastly, this study will be a reference for those interested researcher in related future research in the SSA countries.
Structure of the Research
The remainder of this paper is organized as follows: we present the methodological framework in the next section. In Section 3, we report the data used and the estimation results. Section 4 raises policy implications and draws some conclusions. Additional tables are presented in Appendix.
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