Composition of growth, institution and external debt reduction in Africa

This study investigates the link between the composition of growth, institutions, and external debt reduction. Despite the rising external debt stock profile and dwindling domestic revenue of almost all the African countries, very few or no studies have investigated the composition of growth-external debt link to determine which productive sectors of the economy contribute more resources for the purpose of policy targeting. Applying the 'System' generalized method of moments (Sys-GMM), Two-stage Least Square (TSLS) and Panel Ordinary Least Squares (POLS) estimation techniques on panel data from 41 African countries spanning the period 1980-2019, our results suggest that among the three productive sectors -agriculture, industrial, and services -only the services sector showed a significant positive impact on external debt stock. The results of the control variables are broadly consistent with theoretical expectations. A policy framework that encourages the improvement of institutional and macroeconomic qualities and huge investments in the three sectors (most especially in the services sector) will generate substantial resources to aid the servicing and repayment of Africa's high external debt obligations.