Abstract – The present paper investigates the impact of external debt on Mozambique’s economic growth for the period from 2001 to 2017. Mozambique is a country with a high external debt as it has reached about 70.8% of GDP in 2017, representing 74% of total public debt. The real GDP decelerated to 3.7% in 2017, far below from the average growth of 7% that the country achieved on between 2011 and 2015. This is an empirical study based on the Johansen cointegration, the unit root test was conducted through the ADF and PP tests and the VAR and VECM models were estimated. Thus consumption, external debt and investment have a long-term relationship with economic growth, but the external debt has a negative effect on economic growth as the results showed that an increase in external debt of 1% may cause an increase in GDP of about 0.9% in short run and a decrease of 8% in long-run. Thus external debt should be well addressed and used for development oriented investments.
Keywords: Mozambique, Economic growth, external debt, VAR
Cite as: Nuvunga, V. C. (2020). Does External Debt Stimulate Economic Growth in Mozambique? An Empirical Evidence. Diverse Journal of Business and Economic Growth, Vol. 1, Issue 2, Pages 1-7.
