EFFECT OF DOMESTIC DEBT ON ECONOMIC GROWTH IN THE EAST AFRICAN COMMUNITY

This paper empirically explores the effect of domestic debt, as a share of Gross Domestic Product (GDP), on economic growth in the East Africa Community (EAC) over the period 1990-2010. This study was based on the Solow growth model augmented for debt. Levin-Lin-Chu test (LLC) was used to investigate the properties of the data with respect to Unit roots. The Hausman specification test was used to select the panel fixed-effects model, which was corrected for heteroscedasticity. The results show that domestic debt has a positive significant effect on per capita GDP growth rate in the EAC. The policy implication is to promote sustainable levels of domestic borrowing to enhance growth.