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

 
 
 
 
 
 
 

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ABSTRACT 
The aim of this study was to estimate the effect of external public debt on economic 
growth in four East African countries. These included Kenya, Tanzania, Uganda, and 
Rwanda. The study also analyzed the risk and costs associated with public debt in the 
countries. The study used panel data for the period 1981 to 2014. The data was analyzed 
using the fixed effect and the random effects model estimation techniques. The study 
found that external debt had a negative effect on economic growth in East African 
Countries. Domestic debt, on the other hand, had no significant effect on economic 
growth. Additionally, capital stock had a positive relationship with economic growth. 
However, macroeconomic factors such as real interest rate, inflation rate, and exchange 
rate did not have a significant effect on economic growth. The risk-cost analysis showed 
that EAC countries face exchange rate risks when borrowing. Specifically, a depreciation 
of local currencies led to an increase in public debt. In light of these findings, EAC 
countries should adopt an optimal balance between external and domestic debt to ensure 
sustainable economic growth. They should also implement measures to stabilize their 
currencies to avoid an increase in debt burden due to exchange rate depreciation. 
 

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Table of Contents
 
DECLARATION
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DEDICATION
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