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Debt and Growth in Developing Countries - Debito e crescita nei paesi in via di sviluppo

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  • Dao, Minh Quang

    ()
    (Eastern Illinois University)

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    Abstract

    This paper investigates the effect of both external and public debt on growth in developing countries. Based on data from the World Bank and using a sample of sixty-two developing economies, we find that per capita GDP growth is linearly dependent upon the percentage of the urban population with sanitation services, the percentage of the urban population with water access, that of the rural population with water access, gross capital formation as a percent of GDP, the adult literacy rate, the ratio of bank liquid reserves to bank assets, the globalization index, social and political globalization. Regression results also show external debt to exports ratio does not linearly influence growth for this sample of countries. However, for a sample of twenty-seven Heavily Indebted Poor Countries (HIPC), external debt as a percent of GDP does exert a negative impact on growth. On the other hand, using another sample of fifty-two developing economies, we are able to show that public debt as a percent of GDP positively affects growth. Statistical results of such empirical examination will assist policy makers in developing countries understand the links between debt and growth and in order to take devise policies aimed at fostering economic growth. Data for all variables are from the 2010 World Development Report, the 2009 World Development Report, the 2010 KOF Index of Globalization, and the NationMaster.com website. We apply the least-squares estimation technique in a multivariate linear regression. We observe that in the first regression a few coefficient estimates do not have the expected sign due to possible collinearity among some independent variables.

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    Bibliographic Info

    Article provided by Camera di Commercio di Genova in its journal Economia Internazionale / International Economics.

    Volume (Year): 64 (2011)
    Issue (Month): 2 ()
    Pages: 173-193

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    Handle: RePEc:ris:ecoint:0614

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    Related research

    Keywords: External Debt; Public Debt; Globalization Index; Gross Capital Formation; Literacy Rate; Developing Countries;

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    References

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    1. Allen J. Scott, 2009. "World Development Report 2009: reshaping economic geography," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 9(4), pages 583-586, July.
    2. Peter Hjertholm & Jytte Laursen & Howard White, 2000. "Macroeconomic Issues in Foreign Aid," Discussion Papers 00-05, University of Copenhagen. Department of Economics.
    3. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 04/15, International Monetary Fund.
    4. World Bank, 2010. "World Development Report 2010," World Bank Publications, The World Bank, number 4387, August.
    5. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, Elsevier, vol. 64(2), pages 547-570, April.
    6. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, Elsevier, vol. 52(1), pages 169-187, February.
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