Thursday, 28 March 2019: 3:20 PM
Olugbenga A. Onafowora, Ph.D. , ECONOMICS, Susquehanna University, SELINGSGROVE, PA
Oluwole Owoye, Ph.D. , Department of Social Sciences/Economics, Western Connecticut State University, Danbury, CT
African countries are characterized by high levels of government debt and many are widely considered among the world’s most corrupt states. A series of inductive studies have attempted to link the relatively low levels of economic growth and development of many African countries to elements of corruption and public indebtedness. Few empirical studies have explicitly used a deductive approach to prove such conjectures, mainly due to the paucity of reliable data until the very recent years. One is therefore left to wonder whether the potential negative relationship between public debt and economic growth when controlling for corruption, is due mainly to public debt, or public debt and corruption each have an independent impact on economic growth, or public debt and corruption matter for growth but it is difficult to identify their separate impact on growth. This paper applies the dynamic panel Systems Generalized Method of Moments estimator technique suggested by Arellano and Bover (1995) and Blundell and Bond (1998) in order to investigate the effect of the interaction between public debt and corruption on economic growth in a panel of 37 sub-Sahara African countries over the period 1995-2017 and contribute to the recent literature and discussion on the macroeconomic cost of corruption in African countries. The results reveal that both public debt and corruption have independently a negative and significant impact on economic growth, but when we consider debt and corruption as an interactive variable, the effect on economic growth is positive and statistically significant. This suggests the existence of a corruption threshold above which one cannot observe the ill effects of public debt on economic growth. We perform various robustness exercises that also confirm these results. More importantly, our results underscore the need to give careful consideration to the role of corruption in the relationship between public debt and economic growth in the design of macroeconomic and public policies targeted at combating corruption, ensuring sustainability and promoting economic growth and development.