How Significant is Trade, Macroeconomic Management, and Economic Integration for Foreign Indebtedness in West African Countries?

Abstract

The implications of trade, macroeconomic management, and economic integration for external debt have rarely been researched in public debt studies. Hence, the novelty of this study’s contribution to the literature hinges on identifying the significance of these factors in external debt accumulation for West African countries from 1981 to 2020. Methodologically, the study applied pooled mean group analytical approach due to its significance in identifying short-term heterogeneous effects. Empirical deductions from the study indicated that trade and economic integration would trigger external debt accumulations in the short term, while the implication of macroeconomic management is neutral. However, the long-term impacts of trade and economic integration demonstrate a diminishing effect on external debt, while macroeconomic management has weak significance. The individual country short-term results indicated that trade enhanced the volume of external debt in almost all countries examined. Also, macroeconomic management and economic integration were revealed to have moderate and insignificant effects on external debt accumulation. Furthermore, the role of financial sector uncertainty, political imbalance, insurgency, and disease outbreaks was affirmed as accompanying exacerbating factors for foreign indebtedness in West African countries. JEL Classification: E6, F34, H63.