Fosu, Augustin (2010): The external debt-servicing constraint and public-expenditure composition in sub-Saharan Africa. Published in: African Development Review , Vol. 22, No. 3 (2010): pp. 378-393.
Download (201kB) | Preview
In the light of the current global financial and economic crises, how would governments in sub-Saharan Africa (SSA) allocate their budgets across sectors in response to a binding debt-servicing constraint? Within a framework of public-expenditure choice, the present paper estimates constraint-consistent debt-service ratios and employs them in Seemingly Unrelated Regression involving five-year panel for up to 35 African countries over 1975-94, a period preceding the Highly Indebted Poor Countries (HIPC) initiatives. While observed debt service is found to be a poor predictor of expenditure allocation, constraining debt servicing shifts spending away from the social sector, with similar impacts on education and health. The implied partial elasticity of the sector’s expenditure share with respect to debt is estimated at 1.5, the highest responsiveness by far among all the explanatory variables considered, including external aid. Thus, if the social sector is to be protected, sufficient debt relief for SSA countries should be pursued.
|Item Type:||MPRA Paper|
|Original Title:||The external debt-servicing constraint and public-expenditure composition in sub-Saharan Africa|
|Keywords:||Debt-servicing constraint, public-expenditure composition, sub-Saharan Africa|
|Subjects:||F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
H - Public Economics > H5 - National Government Expenditures and Related Policies > H50 - General
|Depositing User:||Augustin Fosu|
|Date Deposited:||05 Jun 2012 19:04|
|Last Modified:||08 Feb 2016 13:36|
Baqir, Reza (2002). ‘Social sector spending in a panel of countries,’ IMF Working Papers (WP/02/35), Washington D.C.: International Monetary Fund.
Bleaney, M., N. Gemmell and D. Greenaway (1995). ‘Tax revenue instability, with particular reference to sub-Saharan Africa’, Journal of Development Studies 31(6): 883-902.
Buchanan, J. (1989). ‘The public-choice perspective’, in J. Buchanan, ed., Essays on the Political Economy, pp 13-24. Honolulu: University of Hawaii Press.
Cashel-Cordo, P. and S. G. Craig (1990). ‘The public sector impact on international resource transfers’, Journal of Development Economics 32 (1): 17-42.
Clements, B. Bhattacharya, R. and Nguyen, T. Q. (2003). ‘External debt, public investment, and growth in low-income countries,’ IMF Working paper WP/03/249.
Cogan, Ann-Louise (2002). ‘Hazardous to health: the World Bank and IMF in Africa,’ Africa Action Position Paper, April.
Cohen D. (1993). ‘Low investment and large LDC debt in the 1980s,’ American Economic Review,’ 83(3), 37-449.
Craig, S. G. and R. P. Inman (1986). ‘Education, welfare, and the ‘new’ federalism: state budgeting in a federalist public economy’, in H. Rosen (ed.) Studies in State and Local Public Finance. Chicago: University of Chicago.
Dao, M. (1995). ‘Determinants of government expenditures: evidence from disaggregative data’, Oxford Bulletin of Economics and Statistics 57 (1): 67-76.
Devarajan S., A. S. Rajkumar and V. Swaroop (1998). ‘What does aid to Africa finance?’ unpublished paper, the African Economic Research Consortium, Nairobi, Kenya.
Elbadawi, I., B. N. Ndulu and N. Ndungu (1997). ‘Debt overhang and economic growth in sub-Saharan Africa,’ in Z. Iqbal and R. Kanbur (eds.), External Finance for Low-income Countries. Washington DC: International Monetary Fund.
Fardmanesh, Moshen and Nader Habibi (2000). ‘What is the vulnerable during fiscal retrenchment?’ Economics and Politics, 12(1): 83-108.
Feyzioglu, T., V. Swaroop and M. Zhu (1998). ‘A panel data analysis of the fungibility of foreign aid’, World Bank Economic Review 12 (1): 29-58.
Fielding, D. (1997). ‘Modelling the determinants of government expenditure in sub-Saharan Africa’, Journal of African Economies 6 (3): 377-90.
Fosu, A. K. (1996). ‘The impact of external debt on economic growth in sub-Saharan Africa’, Journal of Economic Development 21(1): 93-117.
Fosu, A. K. (1999). ‘The external debt burden and economic growth in the 1980s: evidence from sub-Saharan Africa’, Canadian Journal of Development Studies 20 (2): 307-318.
Fosu, A. K. (2007). ‘Fiscal allocation for education in sub-Saharan Africa: implications of the external debt service constraint,’ World Development, 35 (4): 702-713.
Fosu, A. K. (2008). ‘Implications of the external debt-servicing constraint for public health expenditure in sub-Saharan Africa’, Oxford Development Studies, 36(4): 363-377.
Gang, I. N. and H. A. Khan (1990). ‘Foreign aid, taxes and public investment’, Journal of Development Economics 34 (1-2): 355-369.
Gbesemete, K. P. and U-G. Gerdtham (1992). ‘Determinants of Health Care Expenditure in Africa: A Cross-sectional Study,’ World Development, 20(2), 303-308.
Goel, Ranjeev K and Michael Nelson (1998). ‘Corruption and government size: A disaggregated analysis,’ Public Choice, 97(1-2): 107-120.
Greene, J. (1989). ‘The external debt problem of sub-Saharan Africa,’ IMF Staff Papers, 36(4): 836-74.
Gupta, Sanjeev, Hamid Davoodi, and Erwin Tiogson (2000). ‘Corruption and the provision of health care and education services’, IMF Working Papers (WP/00/116), Washington D.C.: International Monetary Fund.
Gupta, Sanjeev, Luis de Mello, and Raju Sharan (2001). ‘Corruption and military spending’, European Journal of Political Economy, 17(4): 749-777.
Gupta, Sanjeev, Benedict Clements, Emanuel Baldacci, and Carlos Mulas-Granados (2002). ‘Expenditure composition, fiscal adjustment, and growth in low-income countries’, IMF Working Papers, No. 77: International Monetary Fund.
Habibi, Nader (1994). ‘Budgetary policy and political liberty: a cross-sectional analysis,’ World Development, 22(4): 579-86.
Heller, P. S. (1975). ‘A model of public fiscal behavior in developing countries: aid, investment and taxation’, American Economic Review 65 (3): 429-445.
Keefer, P. and S. Knack (2007). ‘Boondoggles, rent-seeking, and political checks and balances: public investment under unaccountable governments’, Review of Economics and Statistics, 89(3): 566-572.
Inman, R. P. (1979). ‘The fiscal performance of local governments: an interpretative review’, in P. Mieszkowski and M. Straszheim (eds) Current Issues in Urban Economics. Baltimore: Johns Hopkins University Press.
International Development Statistics Online Databases on aid and other resources, URL: http://www.oecd.org/dac/stats/idsonline
Iyoha, Milton and Dickson Oriakhi (2004). “Explaining African economic growth performance: the case of Nigeria,” AERC Growth Project.
Lim, D. (1983). ‘Instability of government revenue and expenditure in less developed countries’, World Development 11 (5): 447-450.
Mahdavi, S. (2004). ‘Shifts in the composition of government spending in response to external debt burden,’ World Development 32(7): 1139-1157.
Marshall, Monty G., and Keith Jaggers (2002). ‘Polity IV project: dataset users' manual,’ Integrated Network for Societal Conflict Research (INSCR) Program, Center for International Development and Conflict Management (CIDCM). University of Maryland.
Mauro, Paolo (1998). ‘Corruption and the composition of government expenditure,’ Journal of Public Economics, 69 (2): 263-279.
Mosley, P., J. Hudson and S. Horrell (1987). ‘Aid, the public sector, and the market in less developed countries’, Economic Journal 97 (387): 616-641.
Ouattara, B. (2006). “Foreign aid and government fiscal behaviour in developing countries: panel data evidence,” Economic Modelling, 23, 506-514.
Pattillo, Catherine, Hélène Poirson, and Luca Ricci. (2002). ‘External debt and growth,’ IMF Working Paper 02/69, Washington DC: IMF.
Polity IV Project, Integrated Network for Societal Conflict Research (INSCR) Program, Center for International Development and Conflict Management (CIDCM), University of Maryland. URL http://www.cidcm.umd.edu/inscr/polity.
Sahn, D. E. (1992). ‘Public expenditures in sub-Saharan Africa during a period of economic reform,’ World Development, 20(5), 673-693.
Shepsle, K. A. (1979). ‘Institutional arrangements and equilibrium in multidimensional voting models’, American Journal of Political Science 23: 27-59.
Tanzi, Vito, Hamid Davoodi. (1997). ‘Corruption, public investment and growth,’ IMF Working Paper, WP/97/139, International Monetary Fund.
Taylor, L. (1993). The Rocky Road to Reform: Adjustment, Income Distribution and Growth in the Developing World. London: The MIT Press.
Tullock, G. (1971). ‘Public decisions as public goods’, Journal of Political Economy 79 (4): 913-918.
World Bank (1992). African Development Indicators. Washington, DC: The World Bank.
World Bank (1996). African Development Indicators. Washington, DC: The World Bank.
World Bank (1988/89). World Debt Tables. Washington, DC: The World Bank.
World Bank (1998/99) .African Development Indicators. Washington, DC: The World Bank
World Bank (1999). Global Development Finance. Washington, DC: The World Bank.
World Bank (2004). Africa Database CD-ROM, Washington, DC: The World Bank.
Zellner, A. (1962). ‘An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias,’ Journal of the American Statistical Association, 57, 348-368.