Economic openness, sovereign debt and debt crisis : evidence from Sub-Saharan Africa

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Dery, Cosmas B.D.
University of Lethbridge. Faculty of Arts and Science
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Lethbridge, Alta : University of Lethbridge, Dept. of Economics
The concurrent high level of economic openness and external debt in Sub-Saharan Africa (SSA) has ignited questions on whether the debt problem in SSA is an openness problem. This thesis examines the relationship between openness and the likelihood of debt crisis occurrence in 46 SSA countries using panel data from 1980 to 2013. We also investigate the external debt accumulation effect of openness in a dynamic external debt model. From Our GMM estimation we found external debt to be an increasing function of openness initially and a decreasing function of openness over time. Using logit MLE, we found the external debt accumulation effect of openness to effectively translate into increased risk of debt crisis occurrence initially but over time, openness decreases the probability of debt crisis occurrence. Our results are robust to alternative measures of openness as well as changes in the definition of external debt and debt crisis.
debt crisis , economic openness , external debt , marginal effect of openness , Sub-Saharan Africa