An analysis of the impact of external debt on economic growth: The case of Zimbabwe: 1980-2012
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Date
2014
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Publisher
University of Namibia
Abstract
The thrust of this study was to analyse the impact of external debt on Zimbabwe’s economic growth using a Vector Autoregressive approach (VAR). The study used annual time series data covering the period 1980 to 2012 on the following variables: Economic growth (proxied as Real Gross Domestic Product), capital (proxied as Gross Fixed Capital Formation), labour force and external debt represented as LNY, LNK, LNLAB and LNEXT respectively. Results from the analysis confirm a long-run negative relationship between external debt and economic growth. The Toda-Yamamoto Granger causality tests revealed the existence of
unidirectional causality running from external debt to economic growth. This result indicates that for Zimbabwe, external borrowing has had an influence on the country’s Gross Domestic Product (GDP). Thus, the results further confirm the presence of debt overhang in Zimbabwe. In this regard, effective debt management policies and strategies aimed at reducing the cost
and risks associated with external debt are a must for ensuring a sustainable path of external debt to promote economic growth. There is need for government to put in place a public debt law to ratify any borrowings requirements. This will help in ensuring that all borrowings by
government are targeted towards financing of projects that have a high return which would result in crowding in of private investments as well as ensuring fiscal sustainability. Expansion of the tax revenue base will help ease the budget deficit which compels huge borrowing by governments both externally and internally.
Description
A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Science in Economics
Keywords
External debt, Economic growth, Zimbabwe