Abstract:
This study empirically examined the relationship between capital formation, external debt and economic growth in ECOWAS countries from 2000 – 2018 using the Generalized Method of Moments (GMM) estimator. Empirical results showed that capital formation had a positive and significant impact on economic growth, while external debt had a significant negative impact on economic growth. It was also found that the optimal threshold for external debt in the ECOWAS countries is 75.95 percent. In addition, it was found that the debt-to-GDP ratio of the ECOWAS countries were below the threshold value of 75.95 percent except Cape Verde whose threshold value stands at 96.5 and 91.1 percents in 2017 and 2018 respectively has surpassed the turning point value 75.95 percent. The results also showed no significant Granger causality running from capital formation and economic growth to external debt. Uni-directional causal relationship between external debt and capital formation was, however found. On the basis of the above, the study recommended that ECOWAS executives should collaborate with the governments of member countries to pursue adequate governance practices if they are to ensure appropriate and effective external debt management in ways that economic growth will be enhanced instead of economic growth retardation.