Ifeoma C. Nwakoby, Hillary Chijindu Ezeaku


Studies on the contribution of concessional debt to economic development are sketchy. The paucity of empirical studies on this subject is even more glaring in the context of the English-speaking West African countries. Bilateral and multilateral aid donors have intensified the flow of official assistance to the developing countries of the world with the aim to bridge the developmental gap between the less developed countries and the industrialized countries of the world. The question that often arises is whether such aids have yielded the desired results among the recipient countries. Against this backdrop, we examined the effect of concessional debt on the economic development in the West African Monetary Zone (WAMZ) using cross-sectional data from 1975-2014. The panel cointegration and panel unit root tests were employed to test for long-run relationship and stationarity of the series respectively. Our model was analysed with both fixed and random effect panel regression while the Hausman test be used to determine the best and appropriate choice between the two. Our findings reveal that multilateral and bilateral concessional debts have significant positive effect on standard of living in the West African Monetary Zone. The panel cointegration test also indicates that there is no long-run relationship between concessional debt and per capita income. We conclude that inflow of concessional aid from multilateral and bilateral donors has had remarkable influence on the standard of living in the region. We recommend that concessional aid to the less developed countries be intensified. However, recipient countries should have a credible external borrowing guideline scribed in their legislation to check against excessive borrowing and also ensure that aid received is used for the intended (developmental) purposes. External institutions and aid agencies should also be involved in the entire aid administration with aim of ensuring that aid is extended based on need, not political ties.

JEL: A10; B20; C01

Article visualizations:

Hit counter


concessional debt; economic development; WAMZ

Full Text:



Abdullahi, M. M., Aznin, N., Abu, B., & Hassan, S. B. (2016). Debt Overhang versus Crowding Out Effects : Understanding the Impact of External Debts on Capital Formation in Theory. International Journal of Economics and Financial Issues, 6(1), 271–278.

Abuzeid, B. F. (2009). Foreign Aid and the “Big Push” Theory: Lessons from Sub-Saharan Africa. Stanford Journal of International Relations Foreign, XI(1), 16–23.

Afonso, A., & Alves, J. (2014). The Role of Government Debt in Economic Growth. LSEG Working Papers, (16), 1–45.

Akram, N. (2013). Empirical Examination of Debt and Growth Nexus. Asia-Pacific Development Journal, 20(2), 29–52.

Akum, G. J. (2011). The Impact of Foreign Debt on GDP growth ( Cameroon ). A Thesis in Partial Fulfillment of an MBA in Comparative Institution Design for Transition Economy and Business Management, Ritsumeikan Asia Pacific University, 1–102.

Al-Refai, M. F. (2015). Debt and Economic Growth in Developing Countries : Jordan as a Case Study. International Journal of Economics and Finance, 7(3), 134–143. http://doi.org/10.5539/ijef.v7n3p134

Annen, K., & Knack, S. (2015). On the Delegation of Aid Implementation to Multilateral Agencies. World Bank Group Policy Research Working Papers, (7455), 1–37.

Bal, D. P. (2016). The effects of public debt on capital formation in India : Evidence from structural VAR analysis India: evidence from structural VAR analysis. Int. J. Monetary Economics and Finance, 7(1), 66–80. http://doi.org/10.1504/IJMEF.2014.063838

Benayed, W., Gabsi, F. B., and Belguith, S. O. (2015). Threshold Effect of Public Debt on Domestic Investment : Evidence from Selected African Countries. Theoretical and Applied Economics, XXII(4), 189–198.

Biscaye, P., Harris, K. P., Reynolds, T., & Anderson, C. L. (2015). Relative Effectiveness of Bilateral and Multilateral Aid on Development and Social Outcomes. University of Washington, Evans School Policy Analysis and Research (EPAR), Prepared for the Development Policy and Finance Team of the Bill & Melinda Gates Foundation, (294), 1–37.

Checherita, C., & Rother, P. (2010). The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area. European Central Bank Working Paper Series, (1237), 2–42.

Ekanayake, E. M., & Chatrna, D. (2005). The Effect of Foreign Aid on Economic Growth in Developing Countries. Journal of International Business and Cultural Studies, 1–13.

Feeny, S. (2003). The Impact of Foreign Aid on Poverty and Human Well-Being in Papua New Guinea. Asia-Pacific Development Journal, 10(2), 73–93.

Feldman, M., Hadjimichael, T., Kemeny, T., & Lanahan, L., (n.d.). Economic Development: A Definition and Model for Investment. https://www.eda.gov/tools/files/research-Reports/investment-Definition-Model.pdf Retrieved 2/10/2016, 1–26.

Girma, P. H. (2015). The impact of foreign aid on economic growth: Empirical evidence from Ethiopia ( 1974-2011 ) using ARDL approach. Journal of Research in Economics and International Finance (JREIF), 4(1), 1–12.

Gulrajani, N. (2016). Bilateral versus multilateral aid channels. ODI Report, Shaping Policy for Development, Odi.org, (March), 1–24.

Hassan, O. J, Sule, A., & Abu, J. (2015). Implications of External Debt on the Nigerian Economy : Analysis of the Dual Gap Theory. Journal of Economics and Sustainable Development, 6(13), 238–249.

Hynes, W., & Scott. S. (2013). The Evolution of Official Development Assistance. OECD Development Co-Operation Working Papers, (12), 2–28.

Ibe, S. O., & Osuagwu, N. C. (2016). Impact of Capital Formation on the Economic Development of. Fifth International Conference on Global Business, Economics, Finance and Social Sciences (GB16Chennai Conference), 1–9

Ijaiya, G. T., & Ijaiya, M. (2004). Foreign Aid and Poverty Reduction in Sub-Saharan Africa: A Cross-Country Investigation. SAJEMS, 7(3), 1-12.

Jafri, M. K., & Habib. H. (n.d.). Impact Of External Debt Service Payment on The Investment of P. Proceedings of 2nd International Conference on Business Management, 1–19.

Kassu, T., Mishra, D. K., & Asfaw, M. (2014). Public External Debt , Capital formation and Economic growth in. Journal of Economics and Sustainable Development, 5(15), 222–233.

Kitili, A. (2006). Debt Concessionality. SNA/M1.06/20, Fourth Meeting of the Advisory Expert Group on National Accounts 30 January – 8 February 2006, Frankfurt, (43b), 1–13.

Knoll, M. (2013). The Heavily Indebted Poor Countries and the Multilateral Debt Relief Initiative A Test Case for the Validity of the Debt Overhang Hypothesis Martin Knoll School of Business & Economics Discussion Paper Economics. Freie Universitat Berlin School of Business & Economics Discussion Paper Economics, 1–34.

Koeda, J. (2004). Grants or Concessional Loans? Aid to Low-Income Countries with a Participation Constraint. University of California, Los Angeles Job Market Paper, 1–37.

Marcelino, S. R. & Hakobyan, I. (2013). Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth. IMF Working Paper, 14(230), 2-41.

Masud, N., & Yontcheva, B. (2005). Does Foreign Aid Reduce Poverty ? Empirical Evidence from Nongovernmental and Bilateral Aid. IMF Working Paper, 5(100), 1–32.

Matunhu, J. (2011). A critique of modernization and dependency theories in Africa : Critical assessment. African Journal of History and Culture, 3(5), 65–72.

Mcgillivray, M. I. (2004). Is Aid Effective ? Draft Copy of Paper Presented at the Foundation for Development Co-Operation “Financing Development Colloquium”, Held in Surfers Paradise, Australia, during August 2004., (August 2004), 1–17.

Mencinger, J., Aristovnik, A., & Verbic, M. (2015). Revisiting the Role of Public Debt in Economic Growth : the Case of OECD Countries. Inzinerine Ekonomika-Engineering Economics, 26(1), 61–66.

Nekipelov, A. (2011). The Concepts of Economic Growth and Economic Development: Standard Macroeconomics and “Pure Economics” Approaches. A Lecture Presented on January 31, 2011 at the International School for Students Organized by IASSA and Department of Computational Mathematics and Cybernetics, MSU Lomonosov, Russia, 1-16.

Nelson, R. M. (2015). Multilateral Development Banks : Overview and Issues for Congress. Congressional Research Service Report, (R41170).

Odedokun, M. (2004). Multilateral and Bilateral Loans versus Grants : Issues and Evidence. The World Economy, 27(2), 239–263. http://doi.org/10.1111/j.1467-9701.2004.00598.x

OECD. (2014). Modernising Official Development Assistance (ODA) Concessional loans before and after the HLM (Following the OECD-DAC High Level Meeting of 15-16 December 2014). OECD, (December 2014), 2014–2015.

OECD. (2015). Multilateral Aid 2015: Better Partnerships for a Post-2015 World Highlights. OECD, Better Policies for Better Lives, 1–24.

OEKB. (2012). Financing on Concessional Terms (soft loans). Credit Department, Oesterreichische Kontrollbank AG, 1-12.

Panizza, U. (2008). Domestic and external public debt in developing countries. United Nations Conference on Trade and Development Discussion Papers, (188), 1–26.

Panizza, U. (2015). Debt Sustainability in Low- Income Countries the Grants versus Loans Debate in a World without Crystal Balls. Fondation Pour Les études et Recherches Sur Le Développement International, Development Policies Working Paper, (120), 1–22.

Panizza, U., & Presbitero, A. F. (2013). Public Debt and Economic Growth in Advanced Economies: A Survey. Money and Financial Research Group Working Paper, (78), 1–24.

Shareia, B. F. (2015). Theories of Development Bubaker F. Shareia Department of Accounting University of Benghazi. International Journal of Language and Linguistics, 2(1), 78–90.

Woldekidan, H. (2015). The role of foreign aid in reducing poverty : Time series evidence from Ethiopia. Journal of Economics and International Finance, 7(3), 59–71. http://doi.org/10.5897/JEIF2015.0646

Yanguas, P. (2016). The role and responsibility of foreign aid in recipient political settlements. ESID Working Paper, (56), 1–25.

DOI: http://dx.doi.org/10.46827/ejefr.v5i2.1104


  • There are currently no refbacks.

Copyright (c) 2021 Ifeoma C. Nwakoby, Hillary Chijindu Ezeaku

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2015 - 2018. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing GroupAll rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.