Public Debt and Unemployment in Sub-Saharan Africa: The Role of Institutional Framework

Abstract

The study sought to investigate the role of institutional framework in the relationship between public debt and unemployment in the Sub-Saharan Africa (SSA) region. The study used annual panel data of 36 selected SSA economies covering the period 1996 to 2020. The System Generalized Method of Moments was used as the main empirical estimation strategy for investigating the relationship among public debt, unemployment and institutional framework. Findings from the study indicated that public debt acquisition is not contributing to reducing the unemployment situation in the SSA region. Again, it was revealed that institutional framework had a negative and significant effect on public debt accumulation. Finally, it was revealed that institutional quality serves as a good moderator, which ensures the inverse relationship between public debt and unemployment. The conclusions arrived from the research outlined that the acquisition of debts is not channeled to employment creation in the SSA region. Subsequently, the development of stronger institutions reduces the acquisition of excess debts to manage SSA economies. In the light of stronger institutions, debts can be channeled to create employment. Therefore, it was recommended that SSA economies should comprehensively improve institutional quality before strides could be made in effectively utilizing debts to create employment.