Investigating the Effect of Public Debt on Capital Formation Across the Sub-Saharan African Countries via the Theoretical and Empirical Lens of Dual Gap and Financing Gap

Abstract

This study examines a conceptual analysis of the relationship between public debt and capital formation among the Sub-Saharan African (SSA) countries, respectively. Specifically, public debt and domestic debt as well as external debt serve as a meant to an end that all SSA economies must contend with. Over the periods of pre-, during and post-debt relief from 1980 to 2020 of public debt stocks in the SSA region, the macroeconomic indicators have demonstrated unfavorable connections among and between all variables of interest in these nations. The dual gap hypothesis, finance gap theory, and their corresponding economic repercussions often have major negative effects. The analysis demonstrates that it has caused a negative influence on capital formation that is one of the crucial macroeconomic factors for sustained investment growth and economic development.