External Debt,Growth and Debt-Service Capacity in Sub-Saharan Africa: A Theoretical and Empirical Analysis

Abstract

First the paper uses a simple neoclassical production function to show how capital imports can increase output in a low income nation. Secondly the paper shows how the increased output resulting from capital imports can potentially be distributed between debt service payments and consumption. Thirdly the paper uses data from 1980–87 for 31 countries in SSA, to provide empirical estimates of the elasticity of output with respect to capital imports, and the elasticity of the surplus with respect to output.

The theoretical model suggests that the actual surplus available for debt service may be much smaller than that suggested by the productivity of capital imports alone. The empirical estimates for SSA indicate that although capital imports into SSA have been very unproductive the marginal propensity to save seems sufficient to permit the region to generate a surplus for debt service.