The External Debt Crisis

Development economists generally argue that poor countries at their early stages of development are faced with limited domestic resources for development, and can therefore borrow to boost their rate of growth and development. This financing gap, which is based on the Harrod-Domar growth theory, has made developing countries to accumulate large amount of external debt that they could no longer sustain. Moreover, there is now a growing concern that the debt service payment is retarding economic growth and investment in the heavily indebted countries, while also displacing current expenditure in priority sectors like health, education, and social infrastructure. This study therefore, examines the impact of external debt on economic growth and investment in ECOWAS Sub-Saharan Africa over the period 1980 - 1999. The results indicate the presence of both positive and negative spatial dependence in ECOWAS countries across time.