How significant is trade, macroeconomic management, and economic integration for foreign indebtedness in West African countries?

The implications of trade, macroeconomic management, and economic integration for external debt have rarely been researched in public debt studies. Hence, the novelty of this study’s contribution to the literature hinges on identifying the significance of these factors in external debt accumulation for West African countries from 1981 to 2020. Methodologically, the study applied pooled mean group analytical approach due to its significance in identifying short-term heterogeneous effects. Empirical deductions from the study indicated that trade and economic integration would potentially trigger external debt accumulations in the short term, while the implication of macroeconomic management is neutral. However, the long-term quantified relations of trade and economic integration on external debt demonstrate a diminishing effect, while macroeconomic management has weak significance. The individual country short-term results indicated that trade enhanced the volume of external debt in almost all countries examined. Also, macroeconomic management and economic integration were revealed to have moderate and insignificant associations with external debt accumulation. Furthermore, this study affirmed that the role of financial sector uncertainty, political imbalance, insurgency, and disease outbreaks are accompanying exacerbating factors for foreign indebtedness in West African countries.


Introduction
The debt situation in West African countries originated from a complex blend of factors (Aladejare 2023a;Chuku 2013).Although several such factors arose from bad domestic macroeconomic policies, others can be traced to externally induced factors (Aladejare 2021;Chuku 2013).For example, the ineffective macroeconomic policies in most West African countries that lasted until 1982 were due to the extraordinary rise in oil prices, which altered the trade balance of oil-consuming nations within the sub-region and generated fiscal deficits that weakened their domestic investments (UNCTAD 2004).Specifically, the oil shock and a spike in international real interest rates exacerbated economic situations in West African countries.There was no respite with the global recession of 1981-1982, which severely discouraged demand for the major exports of countries in the sub-region (Aladejare 2018;Aladejare 2022a).Furthermore, the worsening terms of trade from the global recession dragged both oil-exporting and importing countries in the region into a balance-of-payment crisis.Rather than diversify their economies to create alternative or multiple sources of revenue, the notion that the global recession would not last and that commodity prices would rise in the future; encouraged most countries in the sub-region to engage in enormous external borrowing to finance their fiscal and external imbalances (Aladejare 2023a).
Consequently, countries in the sub-region became heavily indebted.This phenomenon led to a series of debt relief programmes and campaigns for better fiscal management in the 2000s, especially in nations regarded as Heavily Indebted Poor Countries (HIPCs).Most West African countries except Cape Verde and Nigeria belong to the HIPCs grouping.However, in recent times, there has been an increase in debt accumulation in most West African countries (see Figure 1).A debt-to-GDP ratio of 40% for developing and emerging economies is a prudent threshold indicating debt sustainability (Aladejare 2021;Aladejare 2023a;IMF 2018).However, evidence in Figure 1 shows most West African countries to have exceeded this benchmark, with only Burkina Faso (31.2%) and Nigeria (33.5%) falling below the threshold.Significant factors for this development in developing countries include rising inflation, the growing quest for import substitution and industrialisation (Ajayi and Khan 2000;Dawood et al., 2021;Onyiriuba 2017).Others are over-valued domestic exchange rate and ineffective foreign exchange rate management, declining foreign direct investment (FDI) inflows, and debt sensitivity burden indicators to macro-fiscal shocks (Aladejare 2019  Also, the dismal state of reoccurrence of civil unrest and rising insurgencies in some developing countries are further culpable factors (Aladejare 2021).For instance, the impact of the numerous conflicts in West African countries transcended individual borders; and extended to countries with an economic link to the conflict-ridden countries (Panapress 2017).A precise tale is the 'Boko-haram' insurgence that originated in the North-Eastern part of Nigeria but has spread into Niger and down to Mali.Thus, these necessitated grouping West African countries as those in conflict, post-conflict and others who are 'facing the consequences of the crisis in the neighbourhood' (Panapress 2017).
Regarding the capacity to pay back borrowed funds, developing countries are expected to maintain an external debt-to-export ratio of 140% (Aladejare 2021;Aladejare 2023a;IMF 2018).However, except for Mauritania, West African countries have exceeded this capping (see Figure 2).Poor fiscal management and alleged government corruption have ensured a continuous higher debt profile with insufficient repayment capacity in West African countries (Aladejare 2023a;Aladejare and Musa 2022;IMF 2019).In addition, external debt repayment in the sub-region is weak because primary commodities constitute the bulk of exports; and their proceeds are used to fund continuous growth in import demands.Consequently, fiscal deficits in these nations have also continued to mount upward due to the need to service debts.
Furthermore, West African nations' external indebtedness challenge and resource requirements are directly linked to member nations' capacity to accumulate capital for growth (Ebi and Aladejare 2022).However, since the inception of the debt crisis in the sub-region dating back to the early 1980s, West African countries have been remitting billions of dollars annually to the more prosperous developed nations in the form of debt service.Thus, crowding out funds that could have been deployed to provide domestic services for the sub-region.However, international financial institutions (such as the IMF and World Bank) have been providing relief to debtor countries to reduce their external indebtedness burdens, fostering growth, and reducing poverty.These aids usually occur in making available concessional financing from international financial organisations, provision of debt relief by official creditors under the Paris Club debt rescheduling and restructuring framework, and in some instances, through engaging in bilateral action by creditors.Nevertheless, West African countries have continued to suffer from unbearable poverty levels, civil and regional conflicts, high external debt burdens and poor economic growth (Aladejare 2023b).
Therefore, this study identifies the significance of trade, macroeconomic management, and economic integration in the growth of external indebtedness of West African countries from 1981 to 2020.There is a scant comprehensive list of extant studies on the impact of trade, macroeconomic management, and economic integration on external debt for developing countries.In addition, country studies dominated the few for Africa, particularly West Africa.Thus, suggesting that the implications of these factors for external debt have rarely been researched, which is the novelty of this study's contribution to the public debt literature.Furthermore, the study adopted the pooled mean group (PMG) analytical approach due to its significance in identifying short-term heterogeneous effects.
By convention, trade includes exports and imports of goods and services.A positive trade balance (Exports > Imports) is expected to be beneficial for cancelling or reducing a country's external indebtedness.Nevertheless, the trade balance in developing countries characteristically exhibits a trade deficit (Imports > Exports) due to most developing economies being import dependent and having the bulk of exports in primary goods.Thus, sustaining import consumption demands an external borrowing increase.Also, developing economies may instead have their exports directly impact foreign debts against a reducing effect.The intuition is that external borrowing will accumulate when exportable production costs exceed their proceeds.
Another factor that could exacerbate foreign indebtedness is the nature of macroeconomic management in a country.The existing policy synergy between a country's monetary and fiscal authorities can accelerate or decelerate external debt.For instance, the fiscal authorities in developing countries often justify their need for borrowing on employment creation, economic growth, and infrastructure development needs (Aladejare 2022b;2022c).However, the money supply will decline if the monetary authority simultaneously pursues contractionary policy by increasing interest rates, bank reserve requirements, and selling government securities.The counter policy adopted by fiscal and monetary authorities can negatively impact the country's external debt management.
Thirdly, a country's level of economic integration can affect its foreign debt management.Economic integration widens countries' relationships with other nations, with accruing pay-offs unfolding in diverse dimensions, including infrastructure development, access to broader markets, technology transfer, and economic interdependency (Loayza et al. 2007;Jayaraman and Lau 2009).Consequently, when developing countries open their economies by enhancing their association in the comity of nations, it opens doors to more trading and developing partners.Specifically, the inflows in foreign direct investment (FDI), resources income, and technology transfer can impact a country's foreign debt reliance for growth and development.Thus, a well-managed economic integration policy can extend the revenue base of West African countries and reduce their demand for external debt.
Thus, this study demonstrated that in the short term, trade and economic integration would enhance external debt accumulations while the implication of macroeconomic management on foreign indebtedness remains neutral.However, the long-term consequences of trade and economic integration reduce external debt, while macroeconomic management has weak implications.Furthermore, the individual country's short-term results showed that trade promotes the magnitude of external debt in almost all countries considered.Also, the study found macroeconomic management and economic integration to have moderate and insignificant effects on external debt accumulation in West Africa.In addition, the role of financial sector uncertainty, political imbalance, insurgency, and disease outbreaks was affirmed as accompanying exacerbating factors for foreign indebtedness in the sub-region.
For the rest of this study, Section 2 dwells on the relevant literature review, and Section 3 contains the study's data presentation and model specification.Section 4 covers the empirical study findings, while the study's conclusions are in Section 5.

Theoretical review
Public indebtedness is often demanded in smoothening consumption processes intertemporally when volatility characterises the source of income.Empirical studies attributed to Eaton and Gersovitz (1981) and Chari and Kehoe (1993) state that governments successfully smoothen their consumption path when they demand credit based on their generated revenues.Often governments require extra funds when revenue levels are inadequate or volatile and only opt to redeem the borrowed funds whenever there is an upswing in revenues.Thus, debt servicing in these models conventionally relies on the quantum of debt accumulation and the interest rate rather than yielded income.Consequently, in a steady state, the government often ensures it fully-services its debt.
Another hypothesis by Grossman and Van Huyck (1988) showed that consumption smoothening is when debt servicing is a function of yielded revenue.Notably, the government may demand an amount of debt-based, among other things, on the likelihood distribution of its receipts and the interest rate, as against being dependent on the yielded receipts due to its unreliability.For consumption smoothening, the government's debt servicing is conducted entirely and exclusively when the potential for revenue generation is high.Conversely, when yielded revenue is poor, the government is motivated partially or in total to default on its debt repayment obligations.Irrespective of the choice adopted by the government to manage its debt, there could be a failure to make a strict commitment to debt servicing and uncollateralised debt obligation.Nevertheless, in times of upward trajectory in generated government receipts, the government is still motivated to default on its debt repayment.
The public debt hypothesis holds on the assumption that lenders have a choice between two adaptable approaches, which is crucial to dissuade the borrower (i.e. the government) from defaulting.First is the enforcement of a credit ceiling accessible to the government, and the other is a restriction on future credits in the event of repayment default.However, three theorised options avail themselves to a government that chooses to default despite choosing a creditor from any of the two prevailing anti-defaulting approaches.Nevertheless, Bulow and Rogoff (1989) premised that public borrowing is still feasible for consumption smoothening, regardless of its creditors' credit denial.
Their advanced process entails buying a standard insurance policy during poor revenue yields.Under this premise, regardless of whether public demand for or servicing debt is a function of yielded revenue, the capacity to borrow for consumption smoothening is worthless to the government.At the same time, the enforced penalty of no future lending by owners of capital would not dissuade default.Hence, the demand for uncollateralised loans by the government will not arise.The flaw in this hypothesis stems from the point that standard insurance policies concerning insufficient or unreliable yield in revenue are an abstraction.Furthermore, governments frequently seek a substantial quantity of uncollateralised debts.
Yet another model is associated with where insufficient saving by the government exists.The penalty of no further credit grant will translate to the government's future consumption trajectory being precisely the same as its yielded future revenue stream (Eaton and Gersovitz 1981;Grossman and Van Huyck 1988;Worrall 1990;and Eaton 1993).Consequently, regardless of whether loan demand or servicing is a function of available revenue, the reward of restricted future opportunities to borrow would substantially serve as a deterrent to default, thereby enabling creditors a cheerful credit capping.

Empirical literature
Some literature has isolated the effects of trade, macroeconomic management, and economic integration on the upsurge of foreign indebtedness in emerging/developing nations.Some of these studies are as follows.Greenidge, Drakes, and Craigwell (2010) employed panel dynamic ordinary least squares (PDOLS) to conclude that the output gap, the real effective exchange rate, the level of exports and the level of interest rate are adversely related to the level of foreign indebtedness.Similarly, Eichengreen and Hausmann (2010) observed that a balance sheet or a net-worth impact substantially drives currency crises in emerging countries.They noted that exchange rate adjustment to restore equilibrium in Argentina and Indonesia could be destabilising and highly detrimental to countries whose debts are in foreign currencies.Chuku (2013) analysed the dynamics of external indebtedness in the ECOWAS by adopting a panel dynamic generalised least squares technique.The study's empirical conclusion showed that the GDP gap and the real effective exchange rate depreciation positively affect external debt.Bi, Shen, and Yang (2014) produced a similar find in their study by demonstrating that a considerable depreciation of the real exchange rate in developing countries tends to induce debt default probabilities quickly.Furthermore, the study noted that macroeconomic uncertainty in the form of lower anticipated future incomes tends to reduce the fiscal limits of developing countries.

Trade component and external debt
By conducting a country study, Awan, Anjum, and Rahim (2015) demonstrated that a positive nexus existed between the exchange rate, trade openness, and foreign debt in Pakistan.In contrast, the association between terms of trade and external debt is adverse.A similar study by Al-Fawwaz (2016) engaged autoregressive distributed lag (ARDL).It revealed that the exchange rate, trade openness, and terms of trade significantly and positively impacted external borrowings for Jordan.Chiminya, Dunne, and Nikolaidou (2018) employed the generalised method of moments (GMM) approach.The study showed that trade decelerates external debt for 36 sub-Saharan African (SSA) countries.Similarly, Abbas and Wizarat (2018) revealed in their research that trade reduces foreign borrowing in South-Asian economies.Likewise, in a study conducted for Ghana, Brafu-Insaidoo et al. (2019) applied the ARDL method and found that trade openness lowers short-term external debt profile.However, Aladejare (2021) tried to show the dynamic effect of volatility from macroeconomic outcomes and domestic and external sources on the rising profile of Nigeria's external indebtedness.By applying the ARDL and Toda-Yamamoto causality techniques, the study result supported a long-term rising debt profile originating mainly from export and import growth.
Also, the ARDL method applied by Beyene and Kotosz (2020a) showed that trade deficit and trade openness decreases foreign debt for Ethiopia.In a related study, Beyene and Kotosz (2020b) applied the panel-corrected standard estimation method for HIPCs.Empirically, the study demonstrated that while import and debt servicing enhanced external debt, exports reduced it.However, Dawood et al. (2021) applied the GMM method to study 32 Asian developing and transitioning countries and confirmed that trade and exchange rate promotes external debt in the short and long term.Ajayi (1991) traced Nigeria's foreign debt to some domestic factors, including surging fiscal irresponsibility, inefficient economic management, and overvaluation.Similarly, Ajayi and Khan (2000) opined that the accumulation of foreign indebtedness in African nations such as Ghana, Kenya, Nigeria, Tanzania, and Uganda in the 1990s could be linked to excessive government spending.Edo (2002) adopted the ordinary least squares (OLS) technique in a comparative study of external debt challenges in Africa.The study found that fiscal outlay, the difficulties of the balance of payment, and global interest rates substantially make Nigeria's growth and Morocco's foreign indebtedness compensable.Genberg and Sulstarova (2004) later employed a Monte-Carlo simulation methodology to conclude that fluctuation in lending rate and the primary fiscal deficit and the plausible association between them is the bedrock determinants of foreign indebtedness in developing nations.

Macroeconomic management and external debt
Another related study by Forslund, Lima, and Panizza (2011) assessed the factors that gave rise to government indebtedness in developing and emerging nations.By controlling for a vast set of country specifics, the study submitted that inflation, the state of financial development, and the current account ratio constitute part of the substantial determinants of public debt composition, even though some variations were observed among sub-samples results.Likewise, Chuku (2013) further revealed that inflation and per capita income negatively impact external indebtedness in the ECOWAS region.A related study conducted by Abdullahi, Bakar, and Hassan (2015) further confirmed that interest rates and budget deficits significantly and significantly reduce foreign debt in Nigeria.
In a more comprehensive study, Swamy (2015) assessed the macroeconomic determinants of public debt in 252 sovereign countries.By adopting the GMM technique, the study found that government spending and final consumption outlay are some of the debt-escalating variables in these countries.Also, Lau, Lee, and Apir (2015) revealed that capital expenditure promotes external debt in Malaysia.Similarly, by applying the vector error correction model (VECM), Udoh and Rafik (2017) found that capital spending escalates foreign debt in Malaysia.Onyiriuba (2017) stated that poor effective management of monetary and fiscal policies could trigger macroeconomic imbalance, especially in developing countries.The study concluded that macroeconomic problems associated with developing countries could be linked to enormous external indebtedness, worsened by compounding interest in developing countries' debt obligations to their foreign creditors.Chirwa and Odhiambo (2018) later adopted the ARDL technique to demonstrate that government outlay accelerates external borrowing for the Euro area.Likewise, Abbas and Wizarat (2018) conducted a study on South-Asian countries and found that military spending enhanced external debt for the zone.
Also, Beyene and Kotosz (2020a) further revealed that with the ARDL technique that fiscal deficit, debt servicing, and inflation promoted the growth of foreign debt in Ethiopia.A more comprehensive study by Dong (2020) tried to ascertain the effect of external financial openness on government indebtedness in 37 developing economies.The study concluded that financial openness in the domestic economies of developing countries diminishes both their external and total debt profile.Dong's finding was attributable to the substitution effect between foreign government indebtedness and alternative international funding avenues available to the country.Another similar study by Azolibe (2021) investigated the determinants of foreign debt for 39 HIPCs.The study applied the panel fully modifying the ordinary least squares (FMOLS) technique to conclude that public spending enhances foreign debt in the HIPCs.
The PMG approach was applied by Khan, Arif, and Waqar (2021) to determine the impact of military spending on foreign debt for a study of 35 arms-importing countries.Empirically, the study revealed that military outlay enhanced foreign debt in the examined nations.Likewise, by applying fixed effect panel threshold regression, Colak and Ozkaya (2021) showed that military outlay is external debt-inducing in 12-transiting economies.Dawood et al. (2021) later used the GMM method to study 32 Asian developing and transitioning countries and found that public spending promotes external debt in the short and long term.

Economic integration and external debt
Prior studies, such as Ajayi (1991), noted that deteriorating terms of trade and intensive rise in real interest rates constitute external factors accountable for Nigeria's foreign debt increase.However, by implanting a logit model in a panel study of 25 developing nations, Catao and Sutton (2002) demonstrated that foreign and country-specific volatility factors tend to instigate even higher foreign borrowings and default rates, mainly if these fluctuations are partially policy motivated.Likewise, Catao and Kapir (2004) adopted a logit model for their study.They observed for OECD member nations that external macroeconomic factors of instability tend to aggravate external debt for domestic consumption smoothening.However, the potential to demand further borrowing inhibits the substantial default incentive that traditionally flows with such volatility in OECD countries.
Specifically, Chuku (2013) noted that external reserves and real oil prices are critical external factors that inversely impacted external debt in the ECOWAS.Dong (2020) later stated that external debt factors, such as financial openness in foreign economies, aggravate foreign indebtedness in developing nations.The study finding was due to the substitution effect between foreign and domestic government indebtedness.In contrast, Beyene and Kotosz (2020b) adopted the panel-corrected standard estimation method for a study on HIPCs and found a decelerating effect of FDI on external debt.Similarly, Fatukasi et al. (2020) used the FMOLS method to conclude that debt servicing and trade openness lowers foreign borrowing for Nigeria.While Dawood et al. (2021) further demonstrated in a study of 32 Asian developing and transitioning countries that investment reduces external debt in the short and long term.
From the above empirical review, it is evident that there is a scant of studies that have comprehensively evaluated the impact of trade, macroeconomic management, and economic integration on external debt for developing countries.In addition, country studies dominated the few for Africa, particularly West Africa.These gaps suggest that these factors' implications for external debt have rarely been researched, which is the novelty of this study's contribution to the public debt literature.

Data
Data used in this study were sourced from fourteen West African countries based on availability and completeness and spanned from 1981 to 2020.The countries include Benin, Burkina Faso, Cape Verde, Cote d'Ivoire, The Gambia, Ghana, Guinea-Bissau, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra-Leone, and Togo.
This research used data on debt per GDP to measure external indebtedness.Debt per GDP proxy for external debt since it gives the value of foreign debt to the economy's size.Furthermore, this study adopted different indicators for the three independent factors considered by the study.First, for trade components, and as previously highlighted, the two main branches of trade, imports and exports of goods and services, were adopted.Also, the role of the exchange rate as a critical trade variable necessitated its inclusion as a trade indicator.Finally, these variables were employed to measure the effectiveness of the economy's income-generating capacity and import or consumption demands of the economy and how they impact external debt.
For macroeconomic management indicators, gross national expenditure and growth in broad money supply proxy for fiscal and monetary policy measures, respectively.When there is a persistent increase in federal spending, significantly above accruing revenues, the debt profile for the country is expected to rise.Furthermore, since inflation indicates macroeconomic imbalance from weak macroeconomic management, it completes the list as the third indicator in this category.
This study adopted the level of globalisation, resource-earning, and investment inflows to capture the external factors.Globalisation integrates interactions between individuals in different countries sharing ideas and information or governments of various countries engaging each other to tackle challenges of global reach.The KOF globalisation index is a measure that is overwhelmingly favoured in the literature to possess these features.The index evaluates globalisation along the economic, social, and political dimensions (Dreher, Gaston, and Martens 2008).Thus, its wide use to proxy globalisation in recent studies (Aladejare and Musa 2022;Nathaniel 2021;Onifade et al. 2021;Xu, Wang, and Guo 2022;etc.).The resource-earning variable was also incorporated as part of the external determinant to show the effect of speculative commodity prices of West African countries in the international market.Aggregate data for natural resource rents from oil, minerals, natural gas, coal, and the forest proxy resource earning.Also, FDI inflows capture investment inflows in the sub-region.The higher the inflows of FDI, the more the level of foreign confidence in the sub-region economy.
Table 1 further provides a complete description of the study variables, their corresponding measurements and sources.

Model specification
Unlike the single-country study by Aladejare (2021), and in an attempt to advance on the conventional panel analytical extreme techniques available for adaptability, such as the Mean Group (MG) estimator (with uncorrelated slopes) and the standard pooled estimators of fixed and random effects model possessing indistinguishable slopes across groups; Pesaran, Shin, and Smith (1997) advanced a model that mediates between both methodologies referred to as the Pooled Mean Group (PMG).This procedure allows the constant term, short-run coefficient, and error term to vary individually across cross-sections.However, the long-term parameters are restricted, which are equal for all cross-sections.The PMG technique is adaptable to this research since most West African nations rely on external debt to fund their growth and development plans.Therefore, their long-term parameters should be homogeneous.In contrast, their short-term speed of adjustment should take a heterogeneous feature.Precisely, the PMG model for the three independent factors is as follows: Trade component on external debt: Macroeconomic management on external debt: Economic integration on external debt: The study's short run analysis includes a trend factor to capture three elements.First is the uncertainty that has characterised the financial sector of West African countries.For instance, the world financial crisis that occurred in 2008 revealed how essential the banking sector is as an agent of economic growth and development.Thus, a weak or non-profitable banking sector will discourage banks from lending to the government.Most countries in the sub-region have undergone various financial sector crises, coupled with the sector's inefficiency in funding government's deficits due to their small size.Consequently, most West African countries rely heavily on external financial sources.Secondly, political imbalance and insurgency is no stranger to the sub-region.Within this study's time frame, there is hardly any West African country that has not experienced political uncertainty or insurgencies.Externally borrowed funds are sometimes deployed to curb the challenges of large ammunition purchases, crowding-out funds for growth.Thirdly, there have been divergent shocks from outbreaks of diseases in the region, necessitating individual government's pro-activeness in curtailing and making provision for additional funds, frequently derived through external borrowing.Some of this emergency health indebtedness was noticeable in the AIDS, Ebola, bird flu, and Lassa fever outbreaks, and most recently during the coronavirus outbreak.
The error correcting coefficient, 'ECM', denotes the long-term equilibrium restoration from short-term distortion.In other words, it shows the time the economy takes to revert to long-term equilibrium from short-term disequilibrium.

Correlation and cross-sectional dependency (CD) test
Table 2 shows a weak correlation between the study variables.Hence, the correlation result indicates the insignificant severity of the multi-collinearity problem between the study series.
Furthermore, captured in Table 3 are five distinct long-term CD test estimates.Observations from the five tests' probability values indicated that the null hypothesis of cross-sectional independence was rejected.Instead, the result plausibly validates the acceptance of the alternative assumption of cross-sectional homogeneity.A further validation test is captured in the lower panel of Table 3, known as the slope homogeneity test.Deducible inference from the output demonstrates that the long-term coefficients of the study are truly homogeneous, as against being heterogeneous.

Unit root test
In handling dynamic heterogeneous panel dataset, especially when T > 30, subjecting the study variables to a panel stationarity test is not uncommon.Thus, this research considers two unique panel unit root test classifications.First, as expressed in Table 4, the first category is the Levin, Lin and Chu (LLC) and the Breitung panel unit root tests.These tests have a null hypothesis of unit root with a standard process (Breitung 2000;Levin, Lin, and Chu 2002).On the other hand, we have the second category of test developed with the Fisher framework of the augmented Dickey-Fuller (ADF) and Phillips-Perron (PP), and the Im, Pesaran, and Shin (IPS) test.These tests have their null hypothesis as a series with an independent unit root process (Im, Pesaran, and Shin 2003;Maddala and Wu 1999).
The stationarity result in Table 4 indicates that the study series are integrated at I(0) or I(1) levels.Of particular concern is the order of stationarity of edgdp used as the response variable, since a precondition for implementing the PMG technique requires the response variable to attain stationarity at I(1).However, the regressor variables can be integrated either at I(0) or I(1) or a mixture of both (Pesaran, Shin, and Smith 1997).The output from the variety of unit root tests in Table 4 indicates that edgdp is mainly an I(1) variable.In contrast, the regressor variables are I(0) stationary.Hence, the adoption of the PMG approach for this study is validated.

Test for long-run relationship
Since establishing the order of integration of the variables, the study conducted a cointegration test to determine if the series co-moves in the long run.For this purpose, this study applied the Kao residual-based cointegration test.The second-generation cointegration test was not applicable since the regressors exceeded the prescribed covariate limit of six.Table 5 shows that the null hypothesis of no long-run association at the 5% statistical significance level is invalidated; thus, the variables used in the study co-move in the long term.

Long-term regression output
Output in Table 6 captures the long-term relations between trade components, macroeconomic management, economic integration and foreign debt in the West African sub-region.
The long-term exchange rate coefficient for the trade components shows an insignificant effect on external debt.However, export reveals a positive relationship to external debt.This result implies that external debt follows the same trajectory as exports grow.As previously noted, external borrowing will accumulate when exportable production costs exceed their proceeds.This indicates that in the long term, most West African countries will be growing exports at a production cost which exceeds export revenue; since primary commodities constitute the bulk of exportable.Thus, external indebtedness may increase when such is the case.As stated differently, as exports continue to grow, more resources are required to produce exportable; hence, production costs rise, aggravating debt accumulation.
In contrast, long-term import is adversely linked with external borrowings, implying that an increase in import leads to a decline in external debt.The plausibility of this finding hinges on the intuition that West African countries, in the long term, may transcend from importers of consumables to importers of capital goods needed to produce finished goods in their domestic economies.Every developing nation, such as those in West Africa, has the quest for import substitution and industrialisation (Aladejare, Ebi, and Ubi 2022).Hence, these countries will attempt to broaden their economies from an agrarian base to investing in finished products.Achieving such feet demands enormous capital intensity, which is presently inadequate in these countries.Given this phenomenon, the importation of capital goods will create goods needed to aid the repayment of their cost; thus, external debt diminishes.Potential effects from macroeconomic management, as captured in the second column of Table 6, showed that long-term growth in broad money supply and government spending do not significantly relate to external debt.Nevertheless, a long-term high inflationary episode will diminish the actual worth of external indebtedness.The intuition is that the upward inflationary path suggests an increase in the prices of nontradable goods, a decline in purchasing power, and a fall in aggregate output.A reduction in production pushes the interest rate on external debt upwards, which may induce less demand for external debt.This finding contradicts the hypothesis that governments with a known history of high inflation might demand more foreign debt denominated in international currencies; as a reasonable measure to signal their commitment towards achieving a firm and reliable monetary policy (Chuku 2013).
The third column of Table 6 demonstrates the finding for economic integration.Investment inflow shows a significant adverse potential effect on the long-term growth of foreign debt.Inference from this outcome suggests long-term investors' confidence in West African economies, capable of providing the needed investments for lower longterm external obligations.It is not unlikely that the region's rich resource endowment might have endeared foreign investors' interest in West African economies.Furthermore, resource-earning has a substantial inverse impact on the long-term growth of external debt in the sub-region.Moreover, it indicates that an increase in West African countries' commodity earnings in the international market will promote lower external borrowings in the sub-region.

Short-term estimated results
Unlike the long-term effects of trade components on external debt, the short-term impact revealed in Table 7 shows exchange rate and import to have a significant positive possible effect on foreign indebtedness.Export revealed an insignificant association with external borrowings, suggesting the overwhelming influence of import on trade composition for the sub-region.Therefore, exchange rate depreciation and the overwhelming demand for foreign consumables trigger higher external indebtedness in the short-term, particularly short-term foreign debt.
The quantified short-term macroeconomic management relations are in the second column of Table 7.Inflation and government outlay exhibited positive and adverse potential effects on external debt.As higher inflation episode triggers climbing foreign debts, on the other hand, rising public expenditure pulls down its upward flight.The implication is that when short-term inflationary pressures raise the value of total external debt, the fiscal authority may borrow to liquidate outstanding short-term debt obligations, hoping to drag the total debt volume downwards.Also, the monetary policy control indicator, broad money supply, is insignificant, indicating the overwhelming effect of fiscal power in short-term debt management.
In the third column of Table 7, the short-term estimated relations of economic integration show that globalisation and resource-earning substantially and positively relate to foreign debt.The result implies that both variables are incentives for external debt growth in the sub-region in the short term.However, investment inflows showed a potentially insignificant effect on foreign debt.
Debt servicing, which served as a control variable in the three equations, significantly and positively related to external debt only in the trade equation in the long term.However, its possible short-term effect was only relevant in the macroeconomic management and economic integration estimates.Thus, this implies that debt servicing will exacerbate the trade-external debt nexus in the long term.However, in the short term, the same possible effect only applies to macroeconomic management and economic integration-external debt nexus.
The measured coefficient of the error-correcting term is appropriately signed and robust for the three equations.Examining the coefficient shows that while the trade equation had approximately a convergence speed of about eight years, the macroeconomic management and economic integration had slower convergence speeds of roughly 7 and 5 years, respectively.This result may not be unconnected to the slower pace of countries' integration in the sub-region.Lastly, the trend factor was significant and negative for the three groupings.Suggesting that the increased uncertainty that has characterised the region's financial sector increased regional political imbalance and insurgency, and impacts from unforeseen disease outbreaks; for which governments have had to demand external supplementary funding, aggravates foreign indebtedness for the sub-region.

Cross-sectional short-term analysis
The estimated short-term coefficients of the PMG cross-sections are in Table 8.The countries' significant factors are that exchange rate depreciation significantly accelerates most individual countries' external indebtedness.The exceptions were Gambia, Ghana, Nigeria, where a likely reverse effect was evident, and Mali, with no significant relationship.Furthermore, export demonstrated a reducing effect on foreign debt in most countries except Cape Verde, Ghana, and Togo, with a potential inducing effect, and Burkina Faso and Nigeria, with no significant association.In contrast, imports revealed an increasing relationship with external debt in most countries in the sub-region except for Ghana and Sierra Leone, with declining results, and Guinea-Bissau, with no significant impact.The indication is that the reducing and possibly increasing effect of export and import, respectively, are only applicable in the short-term for most West African countries, as well as the accelerating potential effect of a depreciating exchange rate.
Furthermore, the monetary policy control indicator reduced external debt for Burkina Faso, Ghana, Guinea-Bissau, Nigeria, Senegal, and Sierra Leone.However, the measure exacerbated foreign debt for Cote d'Ivoire, Gambia, Mauritania, Niger, and Togo, while it was insignificant for Benin, Cape Verde, and Mali.Also, higher inflation substantially increased the real short-term value of external debt in most countries.However, the exceptions are Mali, where the likely effect was significantly inverse, and Cape Verde, Ghana, and Sierra Leone, where the outcome was insignificant.The fiscal policy indicator was negligible for most countries except Cape Verde, Cote d'Ivoire, Gambia, Guinea-Bissau and Togo, where it was debt-reducing and debt-enhancing in Niger.Thus, monetary policy management has a moderate short-term impact on the growth of external debt in West African countries.Economic integration severely affected most countries' external indebtedness in the sub-region.Specifically, only Nigeria showed globalisation to be foreign debtenhancing.Similarly, Benin, Burkina Faso, Cape Verde, Nigeria, and Sierra Leone expressed resource-earning, while only Mauritania had investment inflows as external debt-promoting.Therefore, implying that individual countries rely on a long-term positive rise in resource prices and investment inflows to lower external debt.
The short-run adjustment parameter is significant and appropriately signed for all countries in the three groupings.Benin had the fastest convergence rate in the trade component and macroeconomic management groupings.This result may not be unconnected to its position as a trade channel for most consumable goods in the Nigerian economy.Ghana had the fastest economic integration grouping convergence, indicating that its liberalisation policy may be the most attractive within the sub-region to the international community.
Similarly, the trend coefficient is substantially negative for most West African countries in the three groupings.As prior noted, there is seldom any country in the sub-region that has not experienced at least one of increasing uncertainty in its financial sector, political imbalance, insurgency, and effects from unanticipated outbreaks of diseases within the study period.These factors contribute to growth in external borrowing for these countries.

Conclusions
This study identifies the significance of trade components, macroeconomic management, and economic integration in West African countries' external debt growth from 1981 to 2020.Empirically, these variables' relationship with external debt in developing countries is rarely researched.In addition, country studies dominated the few for Africa, particularly West Africa.These gaps suggest that these factors' implications for external debt are scant in the literature, which is the novelty of this study's contribution to public debt studies.Furthermore, the study applied the PMG analytical approach due to its significance in identifying short-term heterogeneous effects.
Empirical deductions from the study indicated that in the short term.At the same time, trade and economic integration will trigger external debt accumulations, and the implications of macroeconomic management on foreign indebtedness are neutral.However, the long-term consequences of trade and economic integration demonstrate a potential diminishing effect on external debt, while macroeconomic management has weak implications.The individual country short-term results indicated that trade enhanced the volume of external debt in almost all countries examined.Also, the research revealed that macroeconomic management and economic integration have moderate and insignificant estimated relations with external debt accumulation.Furthermore, the role of financial sector uncertainty, political imbalance, insurgency, and disease outbreaks was affirmed as accompanying exacerbating factors for foreign indebtedness in West African countries.
Hence, to curb the debt-enhancing effect of trade, export diversification policies should be geared more towards improving the value chain of primary products and the supply chain channels both within and outside the sub-region.This measure will increase aggregate output, improve purchasing power, raise GDP per capita, and lower external debt.Also, controlling macroeconomic management's effectiveness may require establishing a sub-regional Central Bank to oversee the effective implementation of sub-regional monetary policies and complement domestic Central Banks' efforts in promoting a robust and reliable financial sector.Furthermore, the infectiveness of longterm fiscal measures to control external debt could yield unsustainable debts, which could be challenging to manage.Hence, the emphasis should be on strengthening institutions in individual countries.To achieve this measure, governments must collaborate with international lending bodies against using borrowed funds for unproductive ventures.By adopting such strict criteria, the effectiveness of fiscal reform is guaranteed in these countries, thereby enhancing the effectiveness of macroeconomic policy tools for external debt management.
To weaken external imbalances in individual countries and encourage investment inflows to the sub-region, structural bottlenecks that deter FDI inflows, such as the numerous arbitrary tariff and non-tariff barriers, should be eliminated.It would involve strengthening and regularly reviewing trade policies in these countries.Also, nations in the West African sub-region must establish a cooperative contingency purse to be managed by the proposed sub-regional Central Bank.Such a purse should provide palliatives to economies within the sub-region in the event of sudden outbreaks of war, insurgency, health challenges, or natural disasters, thus, reducing the urge for external borrowing.

Figure 2 .
Figure 2. Average External Debt as % of Exports in the West African countries (1981-2020).Source: Author's computation from World Bank World Development Indicator (2022).

Table 2 .
Correlation Matrix of variables.

Table 3 .
long-term CD and slope homogeneity test results.

Table 4 .
Unit root estimated output.