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External Debt, Public Investment, and Growth in Low-Income Countries

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Author Info
Toan Quoc Nguyen
Rina Bhattacharya
Benedict J. Clements
Abstract

This paper examines the channels through which external debt affects growth in low-income countries. Our results suggest that the substantial reduction in the stock of external debt projected for highly indebted poor countries (HIPCs) would directly increase per capita income growth by about 1 percentage point per annum. Reductions in external debt service could also provide an indirect boost to growth through their effects on public investment. If half of all debt-service relief were channeled for such purposes without increasing the budget deficit, then growth could accelerate in some HIPCs by an additional 0.5 percentage point per annum.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/249.

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Length: 24 pages
Date of creation: 06 Jan 2004
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Handle: RePEc:imf:imfwpa:03/249

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Keywords: External debt ; Public investment ; Economic growth ; Low income developing countries ;

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References listed on IDEAS
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  1. Serven, Luis, 1997. "Uncertainty, instability, and irreversible investment : theory, evidence, and lessons for Africa," Policy Research Working Paper Series 1722, The World Bank. [Downloadable!]
  2. Warner, Andrew M, 1992. "Did the Debt Crisis Cause the Investment Crisis?," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1161-86, November. [Downloadable!] (restricted)
    Other versions:
  3. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 1-118. [Downloadable!]
  4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  5. Oks, Daniel & van Wijnbergen, Sweder, 1995. "Mexico after the debt crisis: is growth sustainable?," Journal of Development Economics, Elsevier, vol. 47(1), pages 155-178, June. [Downloadable!] (restricted)
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  6. Hamid Reza Davoodi & Vito Tanzi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  7. Catherine A. Pattillo & Hélène Poirson & Luca Antonio Ricci, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  8. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April. [Downloadable!] (restricted)
  9. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
  10. Emanuele Baldacci & Benedict J. Clements & Thomas William Dorsey & Sanjeev Gupta & Gabriela Inchauste & Mark W. Plant & Shamsuddin Tareq & Nita Thacker, 2002. "Is the PRGF Living Up to Expectations?," IMF Occasional Papers 216, International Monetary Fund.
  11. Sturm, Jan-Egbert, 2001. "Determinants of public capital spending in less-developed countries," CCSO Working Papers 200107, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
  12. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, vol. 52(1), pages 169-187, February. [Downloadable!] (restricted)
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