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economic reform period. The study also confirmed the debt-growth. The trends in external debt in different administration indicate that Ethiopia has been a severely indebted Africa Country. According to Ramakrishna (2003), despite rescheduling and other policy measures, the Ethiopia has not been able to meet its debt service obligations. Debt amount outstanding have increased thereby increasing Ethiopia’s debt.

2.6 Summary and Conclusions

This chapter reviewed some of the existing literature on the linkage between external debts, debt servicing and economic growth in developing countries. The chapter finally reviewed the theoretical literatures that assessed the effects of external debt and debt-service on economic growth in third World countries.

The issue of economic growth is of great importance to any nation state because it is the country’s total output that determines the general welfare (per capita income) of the citizens. As the explosion of the debt crisis in the 1980s, many scholars have written extensively on the nexus of external debt and growth in developing countries. Therefore, these countries can borrow to augment their limited domestic capital and hence promote growth and development through productive investments. Once growth is achieved, the returns of the invested resources should be used to service the debt.

However, many recent empirical studies on developing countries shows that external borrowing, instead of positively promoting economic growth, it retards growth. This is because high external indebtedness discourages the inflow of foreign capital in the form of investment for fear of ill macroeconomic policies that distort the economy. Debt-service, which is the immediate impact of large external debt, drains the debtor countries of resources that could be invested to promote growth. These studies are largely based on individual countries only. From evidence of the reviewed of the literature, the researcher concludes that the impact of external debt and servicing is different for different nations and literature shows that there is need for a more comprehensive study on the subject matter using ECOWAS as a case study this study aims to fill this gap.

EXTERNAL DEBT AND ECONOMIC GROWTH IN THE ECOWAS

3.1 A Brief Economic History of the ECOWAS Countries

The ECOWAS was set-up on 28 May 1975 when fifteen Heads of States of West African countries signed the treaty establishing it at Lagos, Nigeria. It now comprises sixteen members with different levels of economic growth and resources. The selected basic macro economic characteristics of theses countries are shown in Table 1.

As Table 1 indicates, ECOWAS spans a West African territory with 287.45 million inhabitants. Per capita income ranges from US $ 222 for Liberia to US $3193 for Cape Varde. Figure 1 show, the Gross Domestic Product, external debt, debt service, inflation, current account balance, nominal interest rate, and public budget deficit in 2005 of each of the ECOWAS share in 2008

According, to the articles of the Treaty of ECOWAS the community aims at promoting cooperation and development in the fields of industry, transport, telecommunication, energy, agriculture, natural resources, commerce, monetary and financial relations and socio-cultural matters.

3.2 Members States: Benin, Burkina Faso, Cabo Verde, Cot