The African debt: an analysis of the developmental impact of debt cancellation

Abstract

This study examines the impact on developmental performance of African countries of cancellation of their external debts by creditors. The basic question that the study seeks to answer is whether if creditor countries were to cancel debts of heavily indebted poor African countries this would have a significant developmental performance of African countries, in the context of poverty reduction. A number of studies have shown the significance of the debt overhang variables in the investment equation, suggesting that mounting external debt has a depressive effect on investment and savings through both a "disincentive effect" and a "crowding out effect" (see, among others, Hadjimichael and Ghura (1995), Ajayi (1997)).