The Relationship Between Debt And Economic Growth In Mozambique

This document focused on the impact that external and multilateral debt has on economic growth in Mozambique.The standard Growth Model Solow following the Cobb-Douglas function was applied to capture the effect of labor and capital as input from the economy and its part to production and additional debt variables to take into account the impact on the external sources of growth.It should be noted that the Autoregressive Distributed Lag model was applied for co-integration analysis,since the model had data from the zero order I(0)integrated time series and an I(1),in which case the granger causality test would be inadequate.Foreign debt has captured all accumulated debts with bilateral loans and multilateral debt measures all debts accumulated by loans from the international organization(IMF and World Bank)to Mozambique.The study used two models each for each debt level to capture the effect of a particular level of debt on gross domestic product growth.In both models,debt levels have a statistical significance in reducing the growth rate of gross domestic product,however,at a slow pace below 1%.The error correction model was estimated to verify the long-term relationship between economic growth and external debt,the results suggest that,as a 10% increase for external and multilateral debt,it reduces gross domestic product by 1.2 and 1.5%.The document concludes that external funding could be more efficient for the Mozambican economy,although this conclusion is made with caution that a better understanding of internal funding is needed before drawing this conclusion and the strong assumption.