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The Internal-External Debt Ratio and Economic Growth

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  • Tilemahos Efthimiadis

    ()
    (Research Fellow, Centre of Planning and Economic Research, Athens, Greece)

  • Panagiotis Tsintzos

    ()
    (Lecturer (elected), Dept. of Int. Economic Relations and Development, Democritus Univ. of Thrace)

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    Abstract

    In this paper we examine the effects of the ratio of internal to external public debt on a country's economic growth. These effects are examined through a competitive, decentralized model of endogenous economic growth, which relies on public investments. Our findings show that as the internal-external public debt ratio increases, the public to private capital ratio increases which in turn positively affects the long run economic growth rate. The main conclusion of this paper is that the out flow of domestic capital which is needed to service external debt has unfavorable repercussions on an economy's long run steady state growth rate.

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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 941-951

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    Handle: RePEc:ebl:ecbull:eb-11-00632

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    Related research

    Keywords: growth; public debt;

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    1. Andreas Irmen & Johanna Kuehnel, 2008. "Productive Government Expenditure and Economic Growth," CESifo Working Paper Series 2314, CESifo Group Munich.
    2. Ghosh, Sugata & Mourmouras, Iannis A., 2004. "Endogenous growth, welfare and budgetary regimes," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 623-635, December.
    3. Stefan Dietrich Josten, 2000. "Public Debt in an Endogenous Growth Model of Perpetual Youth," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(2), pages 197-, March.
    4. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    5. Paul R. Krugman, 1989. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
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    13. Savvides, Andreas, 1992. "Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows?," Kyklos, Wiley Blackwell, vol. 45(3), pages 363-78.
    14. Currie, Elizabeth & Dethier, Jean-Jacques & Togo, Eriko, 2003. "Institutional arrangements for public debt management," Policy Research Working Paper Series 3021, The World Bank.
    15. P.C. Afxentiou & A. Serletis, 1999. "The Foreign Indebtedness of Moderately and Severely-Indebted Developing Countries," South African Journal of Economics, Economic Society of South Africa, vol. 67(1), pages 44-51, 03.
    16. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    17. Bert Hofman & Helmut Reisen, 1991. "Some evidence on debt-related determinants of investment and consumption in heavily indebted countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(2), pages 281-299, June.
    18. Jeffrey Sachs, 1986. "Managing the LDC Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 397-440.
    19. Ugo Panizza, 2008. "Domestic And External Public Debt In Developing Countries," UNCTAD Discussion Papers 188, United Nations Conference on Trade and Development.
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