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sion, the potentially important contributors to the slowdown of ECOWAS countries economic growth have been the adverse effect of external debt and debt servicing. This study has empirically evaluated empirically the link between debt servicing payments and the ECOWAS external debt stock. As a result of the Error Correction testing procedure, strong evidence emerges that external debt stock and debt servicing has an impact on the economic growth of ECOWAS countries. This finding suggests that external debt stock and servicing may be important factor in determining economic growth in ECOWAS region.

Chapter 6

CONCLUSION AND RECOMMENDATIONS

6.1. Conclusion

External debt is one of the main sources of financing for ECOWAS countries. Rapid increase has been observed in the external debt stock within the period of the study. Viewed in this light, ECOWAS countries should borrow from external sources only when the projects are to be financed are expected to be productive. This study, therefore try to help policy makers in the composition and management of future external debt profiles.

This research studied the effect of external debt and debt servicing on economic growth of ECOWAS countries. This study examined the impact of external debt stock and servicing on the ECOWAS countries. Annual time series data for Gross Domestic product, external debt stock and debt servicing for the period 1960-2008 are analyzed.

Since the data used in the study is an annual data ADF and PP unit root test was applied. The important thing here is the existence of a long-term relationship between variables. Since there is an existence of long term relationship between variables then the short run external debt model must be constructed. The short-run external debt models are estimated through ECM by applying necessary seasonal filters to the series and by taking the first difference of the series. Moreover, appropriate lag intervals of the variables was taken until the satisfactory t-statistics was obtained. The error correction term used in the error correction model is obtained from the estimated long –run relationship. In the all ECMs the sign of the residuals are all negative, which is consistent with the theory. However, t-statistics of the model was significant.

The empirical estimates gave a chance to see the impact of changes of external debt stock and debt servicing on the economic growth on Benin, Burkina Faso, Cote d’Ivoire, Gambia, Guinea- Bissau, Niger, Nigeria, Sierra-Leone and Togo.

6.2. Recommendation

The suggested policy recommendations are as follows: ECOWAS countries need to channel its future external borrowings into productive programs, in which the ECOWAS countries has comparative advantage rather than engaging white elephant programs. This would enable the ECOWAS countries to generate a reasonable amount of money for debt repayment.

Finally, they must embark on a practical debt management policy now, along with maintenance of macroeconomic stability and favorable business climate.