Effect of External Public Debt on Economic Growth: an Empirical Analysis of East African Countries

3.3 Empirical Model 
Based on economic theory, this study modeled GDP growth as a function of external debt, 
domestic debt, debt payment, inflation rate, exchange rate, capital stock and labor force. This 
relationship is expressed as: 
(3) 
Where: 
is real GDP for country i and time t
is natural logarithm
is external debt 
is domestic debt 
is inflation rate 
is exchange rate 
is capital stock 
is labor force
is a stochastic error term
is the constant
are parameters to be estimated 
Table 2: Summary of the variables 
Variable 
Measurement 
Expected sign
GDP
Annual percentage change 
External debt
Total external debt of each country in US Dollars) 
Negative/ positive
Domestic Debt Total domestic debt of each country (in US Dollars) 
Negative/ positive
Inflation rate 
Annual Percentage change in Consumer Price Index
(CPI) 
Negative
Capital stock
Gross fixed capital formation (in US dollar) 
Positive
Labour force 
Total labour force of each country 
Positive
Exchange rate
Exchange rate for each country to the US dollar 
Positive/ negative
 

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3.4 Data Sources 
The study used data for the period 1981 to 2014. Data for GDP growth, capital stock, external 
and domestic debt was obtained from World Bank's website. Data on inflation rate and exchange 
rate were obtained from each countries' central bank. Labor force data was obtained from World 
Bank and each country's bureau of statistics. 
3.5 Estimation Procedure 
3.5.1 Descriptive Statistics 
Data analysis began with description of the stochastic properties of the panel data used in the 
study. Descriptive statistics analysis involved calculating the mean, standard deviation, variance 
and the minimum and maximum values for the variables.