Inflation, Indebtedness and Human Development: Panel Evidence From Southern Africa

While it is hypothesised that inflation and external debt stifle human development, empirical findings on this relationship have been equivocal. This study investigated the impact of inflation and external debt on human development (proxied by the Human Development Index) in 14 Southern African Development Community (SADC) countries. Estimations were based on the two-step system Generalised Method of Moments (GMM). The results of pooled Ordinary Least Squares (POLS) and difference GMM were also reported for robustness. It was established that inflation and external debt stifle human development. Based on these results, policies to reduce inflation and external indebtedness are necessary for human development in the SADC region. To control inflation, SADC countries should avoid monetising budget deficits. Regarding external debt, SADC countries should diversify exports, boost foreign currency earnings, and reduce indebtedness. SADC countries should also allocate borrowed funds for infrastructural development, for example, railways, roads, and electricity. This is the first study to investigate the effect of external debt on human development among SADC countries. Moreover, an estimation technique robust to endogeneity bias and heteroscedasticity is adopted.