Corruption and Debt Hangover: An Empirical Study of sub-Saharan Africa

Abstract

This paper investigates the determinants of foreign debt for 25 countries in sub-Saharan Africa (SSA). Previous studies have emphasized factors such as oil price shocks, deteriorating terms of trade, rising public expenditures, and trade deficit as the main causes of debt hangover in SSA. This study uses a different approach, and measures the effects of corruption on debt through different regression models, and finds that the corruption index is significant in shaping debt hangover in sub-Saharan Africa. Also, the estimated results indicate that the corruption index plays a more important role compared to other macroeconomic fundamentals. The results also indicate that corruption has become a more significant post financial crisis of 2007 when several African countries faced with a new phase of debt forgiveness. Indeed, the results of this study suggest that debt forgiveness has entrapped SSA countries with more corruption, which has exacerbated the level of debt.