Unmasking the Corruption Paradox: Public Debt, Corruption, and Economic Growth in Sub‐Saharan Africa

ABSTRACT This study examines the dynamic interplay between public debt, corruption, and economic growth in 36 Sub‐Saharan African (SSA) countries over the period 2000–2022. Utilizing a two‐step System Generalized Method of Moments (GMM) estimator to address endogeneity concerns, we assess both the individual and interactive effects of public debt and corruption on economic growth. Robustness checks employing fixed‐effects, random‐effects, and leverage‐distance diagnostic techniques confirm the stability of our estimates. The findings reveal that both public debt and corruption independently exert statistically significant negative effects on economic growth. However, their interaction yields a counterintuitive result: in contexts characterized by high levels of corruption, public debt is positively associated with short‐term growth, suggesting the presence of a nonlinear relationship. Specifically, we identify a corruption threshold—4.90 on the logarithmic scale of the Corruption Perceptions Index—above which debt‐financed spending may temporarily boost output by circumventing bureaucratic inefficiencies. These results underscore the complex policy challenges facing SSA economies, where weak institutional environments constrain effective fiscal policy implementation. While the analysis does not endorse corruption, it highlights the relevance of second‐best policy considerations in governance‐fragile settings. Achieving sustainable and inclusive growth in the region requires comprehensive reforms aimed at reducing corruption, enhancing institutional capacity, improving fiscal governance, and ensuring the efficient utilization of public debt. Strategic investment and cross‐sector collaboration will be critical to building resilient and equitable development pathways.