External debt and economic growth in the East Africa community

Using annual data from 1970-2010, this paper employs a panel fixed-effects model to estimate the effect of external debt, as a share of Gross Domestic Product (GDP), on economic growth in East Africa Community (EAC). This study was based on the Solow growth model augmented for debt. The Levin-Lin-Chu test (LLC) approach was used to investigate the properties of the data with respect to unit roots. The Hausman specification test was used to verify the panel fixed-effects model. The findings suggest that external debt has a negative significant effect on per capita GDP growth rate in the EAC. The policy implication is therefore to reduce the external debt burden so as to promote rapid economic growth of the EAC member countries.