IDEAS home Printed from https://ideas.repec.org/a/rnd/arjebs/v12y2020i2p1-8.html
   My bibliography  Save this article

Re-visiting the External Debt-Economic Growth Question in Zimbabwe

Author

Listed:
  • Brian Tavonga Mazorodze

Abstract

This paper quantifies the threshold effect of external debt on economic growth in Zimbabwe between 1980 and 2016. Results from the Fully Modified Ordinary Least Squares (FMOLS) technique confirm that external debt (up to 57% of GDP) raises economic growth. Beyond the 57% of GDP threshold, external debt lowers growth. A separate analysis of variance shows that the mean GDP per capita is lower by 11% when external debt exceeds 57%. From the sample average, the 57% of GDP threshold suggests that debt stock above 4.7 billion USD can be detrimental to the country’s long-run growth prospects. Currently, Zimbabwe’s external debt is standing at over 11 billion USD which is way above the estimated threshold level. Therefore, the policy implication arising from this paper is that the country’s Finance Minister needs to pursue debt-reduction strategies given that the country’s stock of external debt is already sitting in the growth-reducing territory.

Suggested Citation

  • Brian Tavonga Mazorodze, 2020. "Re-visiting the External Debt-Economic Growth Question in Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 12(2), pages 1-8.
    • Handle: RePEc:rnd:arjebs:v:12:y:2020:i:2:p:1-8
    DOI: 10.22610/jebs.v12i2(J).2939
    as

    Download full text from publisher

    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/2939/1925
    Download Restriction: no
    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/2939
    Download Restriction: no
    File URL: https://libkey.io/10.22610/jebs.v12i2(J).2939?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    2. Thomas Herndon & Michael Ash & Robert Pollin, 2014. "Does high public debt consistently stifle economic growth? A critique of Reinhart and Rogoff," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 38(2), pages 257-279.
    3. Andrew M. Warner, 1992. "Did the Debt Crisis Cause the Investment Crisis?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1161-1186.
    4. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296, National Bureau of Economic Research, Inc.
    5. Ms. Hélène Poirson & Mr. Luca A Ricci & Ms. Catherine A Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 2004/015, International Monetary Fund.
    6. Gilles Saint-Paul, 1992. "Fiscal Policy in an Endogenous Growth Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(4), pages 1243-1259.
    7. Jaejoon Woo & Manmohan S. Kumar, 2015. "Public Debt and Growth," Economica, London School of Economics and Political Science, vol. 82(328), pages 705-739, October.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    9. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance. The International Financial System," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages -12, National Bureau of Economic Research, Inc.
    10. David J. Smyth & Yu Hsing, 1995. "In Search Of An Optimal Debt Ratio For Economic Growth," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 51-59, October.
    11. Maureen Were, 2001. "The Impact of External Debt on Economic Growth in Kenya: An Empirical Assessment," WIDER Working Paper Series DP2001-116, World Institute for Development Economic Research (UNU-WIDER).
    12. Checherita-Westphal, Cristina & Rother, Philipp, 2012. "The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area," European Economic Review, Elsevier, vol. 56(7), pages 1392-1405.
    13. Jeffrey D. Sachs, 1989. "Introduction to "Developing Country Debt and the World Economy"," NBER Chapters, in: Developing Country Debt and the World Economy, pages 1-34, National Bureau of Economic Research, Inc.
    14. Cohen, Daniel, 1997. "Growth and External Debt: A New Perspective on the African and Latin American Tragedies," CEPR Discussion Papers 1753, C.E.P.R. Discussion Papers.
    15. Jeffrey D. Sachs, 1989. "Developing Country Debt and the World Economy," NBER Books, National Bureau of Economic Research, Inc, number sach89-3, May.
    16. Aizenman, Joshua & Kletzer, Kenneth, 2007. "Economic Growth with Constraints on Tax Revenues and Public Debt: Implications for Fiscal Policy and Cross-Country Differences," Santa Cruz Department of Economics, Working Paper Series qt9421k9hq, Department of Economics, UC Santa Cruz.
    17. Adam, Christopher S. & Bevan, David L., 2005. "Fiscal deficits and growth in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 571-597, April.
    18. Kharusi, Sami Al & Ada, Mbah Stella, 2018. "External Debt and Economic Growth : The Case of Emerging Economy," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 33(1), pages 1141-1157.
    19. Tito Cordella & Luca Antonio Ricci & Marta Ruiz-Arranz, 2010. "Debt Overhang or Debt Irrelevance?," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 1-24, April.
    20. Schclarek, Alfredo, 2004. "Debt and Economic Growth in Developing and Industrial Countries," Working Papers 2005:34, Lund University, Department of Economics.
    21. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    22. Toan Quoc Nguyen & Mr. Benedict J. Clements & Ms. Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 2003/249, International Monetary Fund.
    23. Reinhard Neck & Gottfried Haber & Andrea Klinglmair, 2015. "Austrian Public Debt Growth: A Public Choice Perspective," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 21(3), pages 249-260, August.
    24. Cohen, Daniel, 1993. "Growth and External Debt," CEPR Discussion Papers 778, C.E.P.R. Discussion Papers.
    25. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284, National Bureau of Economic Research, Inc.
    26. Spilioti, Stella & Vamvoukas, George, 2015. "The impact of government debt on economic growth: An empirical investigation of the Greek market," The Journal of Economic Asymmetries, Elsevier, vol. 12(1), pages 34-40.
    27. Safia Shabbir, 2013. "Does External Debt Affect Economic Growth: Evidence from Developing Countries," SBP Working Paper Series 63, State Bank of Pakistan, Research Department.
    28. Borensztein, Eduardo, 1990. "Debt overhang, credit rationing and investment," Journal of Development Economics, Elsevier, vol. 32(2), pages 315-335, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hikma Bachegour & Ahlam Qafas, 2023. "Does External Debt Worsen Environmental Pollution? Evidence from Morocco," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 68-76, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taner Turan & Halit Yanıkkaya, 2021. "External debt, growth and investment for developing countries: some evidence for the debt overhang hypothesis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 20(3), pages 319-341, September.
    2. Spilioti, Stella & Vamvoukas, George, 2015. "The impact of government debt on economic growth: An empirical investigation of the Greek market," The Journal of Economic Asymmetries, Elsevier, vol. 12(1), pages 34-40.
    3. Kashif Munir & Nisma Riffat Mehmood, 2018. "Exploring the Channels and Impact of Debt on Economic Growth," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 19(2), pages 171-191, September.
    4. Doğan, İbrahim & Bilgili, Faik, 2014. "The non-linear impact of high and growing government external debt on economic growth: A Markov Regime-switching approach," Economic Modelling, Elsevier, vol. 39(C), pages 213-220.
    5. Riffat, Nisma & Munir, Kashif, 2015. "Exploring the Channels and Impact of Debt on Economic Growth in South Asia," MPRA Paper 66830, University Library of Munich, Germany.
    6. Checherita-Westphal, Cristina & Rother, Philipp, 2010. "The impact of high and growing government debt on economic growth: an empirical investigation for the euro area," Working Paper Series 1237, European Central Bank.
    7. Haytham Y.M. Ewaida, 2017. "The Impact of Sovereign Debt on Growth: An Empirical Study on GIIPS versus JUUSD Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 607-633.
    8. Saungweme, Talknice & Odhiambo, Nicholas M., 2020. "The Impact of Domestic and Foreign Public Debt on Economic Growth: Empirical Evidence from Zimbabwe," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(1), pages 77-106.
    9. Cândida Ferreira, 2016. "Debt and Economic Growth in the European Union: A Panel Granger Causality Approach," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(2), pages 131-149, May.
    10. Mencinger, Jernej & Verbic, Miroslav & Aristovnik, Aleksander, 2015. "Revisiting the role of public debt in economic growth: The case of OECD countries," MPRA Paper 67704, University Library of Munich, Germany.
    11. Adom, Philip Kofi, 2016. "The DDT Effect: The case of Economic Growth, Public Debt and Democracy Relationship," MPRA Paper 75022, University Library of Munich, Germany, revised 11 Nov 2016.
    12. Adewale Hassan & Daniel Meyer, 2021. "Exploring the Channels of Transmission between External Debt and Economic Growth: Evidence from Sub-Saharan African Countries," Economies, MDPI, vol. 9(2), pages 1-16, April.
    13. Attard, Juergen, 2019. "Public Debt and Economic Growth nexus: A Dynamic Panel ARDL approach," MPRA Paper 96023, University Library of Munich, Germany.
    14. Mattia Osvaldo Picarelli & Willem Vanlaer & Wim Marneffe, 2019. "Does Public Debt Produce a Crowding Out Effect for Public Investment in the EU?," Working Papers 36, European Stability Mechanism.
    15. María del Carmen Ramos-Herrera & Simón Sosvilla-Rivero, 2016. "Public debt and economic growth: An empirical evaluation," Working Papers 16-06, Asociación Española de Economía y Finanzas Internacionales.
    16. Ikonen, Pasi, 2017. "Financial depth, debt, and growth," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number e51.
    17. Enrique R. Casares, 2015. "A relationship between external public debt and economic growth," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 30(2), pages 219-243.
    18. De Vita, Glauco & Trachanas, Emmanouil & Luo, Yun, 2018. "Revisiting the bi-directional causality between debt and growth: Evidence from linear and nonlinear tests," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 55-74.
    19. Qureshi, Irfan & Liaqat, Zara, 2020. "The long-term consequences of external debt: Revisiting the evidence and inspecting the mechanism using panel VARs," Journal of Macroeconomics, Elsevier, vol. 63(C).
    20. Boukhatem, Jamel & Kaabi, Malèk, 2015. "Dette publique, qualité institutionnelle et croissance économique dans les pays de la région MENA : analyse par la méthode des moments généralisés [Public debt, institutional quality and economic g," MPRA Paper 65756, University Library of Munich, Germany, revised 23 Jul 2015.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rnd:arjebs:v:12:y:2020:i:2:p:1-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Muhammad Tayyab (email available below). General contact details of provider: https://ojs.amhinternational.com/index.php/jebs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.