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External debt, trade and FDI on economic growth of least developed countries

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  • Wamboye, Evelyn
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    Abstract

    This study evaluates the impact of public external debt on long term economic growth of forty least developed countries (LDCs). Arellano-Bond SGMM method is used on unbalanced panel data spanning from 1975 to 2010. A comparative analysis based on different debt specifications and samples is provided. Overall, our findings suggest that high external debt depresses economic growth, regardless of the nature of the debt. Furthermore, debt relief initiatives are crucial as evidenced in the lower negative debt effects on growth in HIPCs sub-sample relative to non-HIPCs. Additionally, trade, initial values of FDI and ODA matter in economic growth of LDCs.

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    File URL: http://mpra.ub.uni-muenchen.de/39031/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39031.

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    Date of creation: 23 May 2012
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    Handle: RePEc:pra:mprapa:39031

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    Keywords: LDCs; External Debt; Economic Growth; HIPCs;

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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, Verein für Socialpolitik, Research Committee Development Economics 22, Verein für Socialpolitik, Research Committee Development Economics.
    2. Savvides, Andreas, 1992. "Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows?," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 45(3), pages 363-78.
    3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 407-43, May.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
    5. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, American Economic Association, vol. 100(2), pages 573-78, May.
    7. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
    8. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
    9. Tito Cordella & Luca Antonio Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt Growth Link," IMF Working Papers 05/223, International Monetary Fund.
    10. Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
    11. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, Elsevier, vol. 52(1), pages 169-187, February.
    12. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
    13. 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.
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