The Efect Of External Debt In Economic Growth

The study attempts to investigate the impact of external debt flows on economic growth in Mauritania over a period of 34 years starting from 1980 to 2014 by using Vector Error Correction Model (VECM). The findings reveal that there is positive impact of external debt on economic growth in the long-run. However, the results indicate a negative relation between services of debt and economic growth both in short and long term. This could be explained by the fact that foreign capital flow is used to enhance the government ability to create a competitive business environment by expanding the national spending. On the other hand, the services of debt constitute a burden on national economy. The country has to spend a significance proportion of its GDP to pay off these services. Therefore, Mauritanian government should seek to improve its national resource and capability to finance its economy transformation and cut down the amount of external debt and ultimately reduce debt services.