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Domestic debt in Low-Income Countries

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  • Andrea F. Presbitero

    () (Università Politecnica delle Marche)

Abstract

The potential consequences of the development of domestic debt markets in Low-Income Countries (LICs) are extremely relevant for policy-makers and international financial institutions, especially in light of a scaling-up of public investment in infrastructures. This paper introduces a new dataset on the stock of domestic debt in LICs over the period 1970-2010. With respect to the existing dataset, this one expands the country and time coverage, devotes a careful attention to the problem of the zeros and addresses some inconsistencies between the existing datasets. The descriptive analysis of the evolution of domestic debt in LICs, especially over the last two decades, points out some interesting patterns. The reliance on internal financing has partially offset the reduction in external debt granted by bilateral and multilateral debt relief initiatives. Domestic debt increased at a lower and less volatile pace in countries with better policies and institutions. This pattern is mirrored by a greater capital accumulation, a faster financial development, and a stronger output growth. This descriptive evidence supports the hypothesis that the development of the domestic debt market can bring benefits only in presence of a stable macroeconomic environment, lack of political uncertainty and a developed financial system.

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File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I2-P104.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 2 ()
Pages: 1099-1112

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Handle: RePEc:ebl:ecbull:eb-11-00834

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Related research

Keywords: Domestic debt; Public debt; Low-Income Countries;

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References

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  1. Ludvig Söderling & Hanan Morsy & Martin Petri & Martin Hommes & Manal Fouad & Wojciech Maliszewski, 2007. "Public Debt and Fiscal Vulnerability in the Middle East," IMF Working Papers 07/12, International Monetary Fund.
  2. Kevin Cowan & Eduardo Levy-Yeyati & Ugo Panizza & Federico Sturzenegger, 2006. "Sovereign Debt in the Americas: New Data and Stylized Facts," Working Papers Central Bank of Chile 371, Central Bank of Chile.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
  4. S M Ali Abbas & Jakob E Christensen, 2010. "The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-Income Countries and Emerging Markets," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 209-255, April.
  5. Aiyar, Shekhar & Berg, Andrew & Hussain, Mumtaz, 2008. "The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience," Working Papers RP2008/79, World Institute for Development Economic Research (UNU-WIDER).
  6. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  7. David Hauner, 2006. "Fiscal Policy and Financial Development," IMF Working Papers 06/26, International Monetary Fund.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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