A Panel Causality Evidence on Domestic Debt, Inflation and Economic Growth in Selected Sub- Saharan African Countries

Abstract

This study investigated the causal relations between domestic debt, inflation and economic growth in selected sub-Saharan African countries using annual data spanning the period of 1995-2023. Specifically, the study analyses the causal relations between domestic debt, inflation and economic growth in Nigeria, South Africa, Ghana, Angola and Kenya. Apart from the use of some pre-analysis test statistics like the Levin, Lin and Chu t* and Im, Pesaran and Shin W-stat tests to assess the panel series properties of the variables, the study employs the Dumitrescu-Hurlin panel causality technique. The study reveals that: there is unidirectional causality between domestic debt and economic growth with causality running from domestic debt to economic growth; there exists no causality between domestic debt and inflation; and also, there exists no causality between economic growth and inflation in the selected subSaharan African countries. The study recommends that governments should deploy the approach of strategically channeling domestic borrowing to productive sectors of the economy and also take into account the potential growth and inflationary effects of expanding domestic
debt when designing fiscal policies, especially in economies where inflation control is a priority (especially Nigeria).