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The Debt-Growth Nexus: a Dynamic Panel Data Estimation

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Author Info
Andrea F. PRESBITERO

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Abstract

This paper investigates the relationship between external debt and economic growth in developing countries. Notwithstanding a general agreement on theory, empirical evidence is not conclusive and lacks of robustness. This contribution aims to shed more light on the relationship between external debt and economic growth and to draw some policy implication for debt relief. This work highlights the critical role of econometric and methodological issues. The results for a panel of 69 developing countries over the period 1977-2002 support a negative linear relationship between external debt and economic growth, and between debt service and investment. These effects seem to be stronger in the Low-Income Countries than in the overall sample, raising concern about the dramatic effect that debt has on economic performance in the world's poorest countries. Eventually, external debt impairs economic growth through the liquidity constraint, the creation of macroeconomic instability, a reduced total factor productivity, and its effect on macroeconomic policies and institutional development.

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Publisher Info
Article provided by SIE - Societa' Italiana degli Economisti (I) in its journal Rivista Italiana degli Economisti.

Volume (Year): 3 (2006)
Issue (Month): 4 (December)
Pages: 417-462
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Handle: RePEc:rie:review:y:2006:v:3:i:4

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Related research
Keywords: HIPC; debt relief; economic growth; external debt;

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  1. Presbitero, Andrea F., 2006. "The debt-growth nexus in poor countries: a reassessment," Proceedings of the German Development Economics Conference, Berlin 2006 22, Verein für Socialpolitik, Research Committee Development Economics. [Downloadable!]
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  2. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-11-19.

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