Natural Resources Endowment, Institutional Quality and External Debt in Selected African Countries
Article Sidebar
Main Article Content
Abstract
This study examines the effects of natural resources endowment and institutional quality on external debt in selected nine African countries from 1996 to 2019. Two measures of institutional quality, control of corruption and government effectiveness, were used as measures of institutional quality while feasible generalized least square (FGLS) was used for the estimation. The findings suggest that natural resources rent leads to more external debts, but control of corruption and government effectiveness reduce it. However, moderating natural resource rent with control of corruption and government effectiveness does not entirely mitigate the positive effect of natural resources on external debt. It is therefore recommended that African governments should not rely solely on enhancing institutional quality as means to reducing foreign debt, but should embrace a more thorough and multifaceted strategy that involves enhancing debt management, economic diversification, fiscal discipline, and resource revenue management.
Downloads
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Authors hold the copyright of all published articles except otherwise stated.
References
Afreximbank (2024) State of Play of Debt Burden in Africa 2024, Debt Dynamics
and Mounting Vulnerability. Cairo 11757, Egypt. Available at https://
media.afreximbank.com/afrexim/State-of-Play-of-Debt-Burden-in-Africa-2024-
Debt-Dynamics-and-Mounting-Vulnerability.pdf
Alemu, T., Choramo, T. T., & Jeldu, A. (2023). External Debt, Institutional Quality
and Economic Growth in East African Countries. Journal of East-West
Business, 29(4), 375-401.
Ampofo, G. M. K., Jinhua, C., Bosah, P. C., Ayimadu, E. T., & Senadzo, P. (2021).
Nexus between total natural resource rents and public debt in resource-rich
countries: A panel data analysis. Resources Policy, 74, 102276.
Chen, J., Ma, W., Kchouri, B., & Ribeiro-Navarrete, S. (2024). Resource rich yet
debt ridden: The role of natural resources and debt servicing in sustainable
economic growth. Resources Policy, 89, 104565.
Frynas, J. G., & Buur, L. (2020). The presource curse in Africa: Economic and
political effects of anticipating natural resource revenues. The Extractive
Industries and Society, 7(4), 1257-1270.
Jones, Y. M. (2014). Debt overhang and natural resources: revisiting the resource
curse hypothesis (Doctoral dissertation, Birkbeck, University of London).
Goes, I., & Kaplan, S. B. (2024). Crude credit: The political economy of natural
resource booms and sovereign debt management. World Development, 180,
Gonzalez-Redin, J., Polhill, J. G., Dawson, T. P., Hill, R., & Gordon, I. J. (2018). It’s not
the’what’, but the’how’: Exploring the role of debt in natural resource (un)
sustainability. Plos one, 13(7), e0201141.
Hendrix, C. S. (2022). Building downstream capacity for critical minerals in Africa:
Challenges and opportunities. Peterson Institute for International
Economics Policy Brief, (22-16).
Kemoe, L., & Lartey, E. K. (2022). Public debt, institutional quality and growth in
sub-Saharan Africa: a threshold analysis. International Review of Applied
Economics, 36(2), 222-244.
Kuwali, D. (2024). Gift or Graft? The Legal and Political Economy of Corruption in
Africa. In Corruption Proofing in Africa (pp. 8-22). Routledge.
Mammadli, M., Sadik-Zada, E., Gatto, A., & Huseynova, R. (2021). What drives
public debt growth?: A focus on natural resources, sustainability and
development. International Journal of Energy Economics and Policy, 11(5),
-621.
Melina, G., Yang, S. C. S., & Zanna, L. F. (2016). Debt sustainability, public
investment, and natural resources in developing countries: The DIGNAR
model. Economic Modelling, 52, 630-649.
Muhanji, S., & Ojah, K. (2016). Governance infrastructure and indebtedness of
African countries: Do regional blocs matter? The North American Journal
of Economics and Finance, 36, 123-153.
Ojeka, O. J., Egbetunde, T., Okoduwa, G. O., Ojeyode, A. O., Jimoh, M., &
Ogunbowale, G. O. (2024). Moderating effect of institutional quality on the
influence of debt on investment in sub-Saharan Africa. Future Business
Journal, 10(1), 76.
Okombi, I. F., & Mampieme, V. B. (2024). Cyclicality of public debt in developing
countries: Does dependence on natural resources matter? Resources
Policy, 96, 105231.
Pratibha, S., Sharma, V., & Krishna, M. (2024). Nexus between total natural resource
rents and public debt within symmetric and asymmetric framework: Fresh
insight from resource-rich economy. Resources Policy, 93, 105007.
Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large
panels. Journal of econometrics, 142(1), 50-93.
Raveh, O., & Tsur, Y. (2020). Resource windfalls and public debt: A political economy
perspective. European Economic Review, 123, 103371.
Senaviratna, N. A. M. R., & A Cooray, T. M. J. (2019). Diagnosing multicollinearity
of logistic regression model. Asian Journal of Probability and
Statistics, 5(2), 1-9.
Sibanda, K., Garidzirai, R., Mushonga, F., & Gonese, D. (2023). Natural resource
rents, institutional quality, and environmental degradation in resource-rich
Sub-Saharan African countries. Sustainability, 15(2), 1141.
Wang, W., Ning, Z., Shu, Y., Riti, J. S., & Riti, M. K. J. (2023). Natural resource rents
and public debts nexus in African resource-rich and most indebted nations:
Issues with aggregation bias. Resources Policy, 82, 103409.
World Bank(2023) World Development Indicators. Available at https://
databank.worldbank.org/source/world-development-indicators.