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Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows?

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  • Savvides, Andreas

Abstract

This paper estimates a simultaneous-equation model for the determination of creditworthiness and investment rates in developing countries. Its purpose is to test the debt overhang hypothesis, according to which the external debt burden provides a strong disincentive to domestic capital formation. The results indicate that debt overhang has contributed significantly to the reduction in developing country investment rates during 1980-86. The model also examines the contribution of foreign capital inflows and shows that commercial inflows contributed significantly to the investment slowdown, while noncommercial inflows were insignificant. Copyright 1992 by WWZ and Helbing & Lichtenhahn Verlag AG

Suggested Citation

  • Savvides, Andreas, 1992. "Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows?," Kyklos, Wiley Blackwell, vol. 45(3), pages 363-378.
  • Handle: RePEc:bla:kyklos:v:45:y:1992:i:3:p:363-78
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    Cited by:

    1. Aminu, Umaru & Ahmad Aminu, Hamidu & Salihu, Musa, 2013. "External Debt and Domestic Debt impact on the growth of the Nigerian Economy," MPRA Paper 75122, University Library of Munich, Germany.
    2. Vivian Lei & Steven Tucker & Filip Vesely, 2010. "Forgive or buy back: an experimental study of debt relief," Review of Economic Design, Springer;Society for Economic Design, vol. 14(3), pages 291-309, September.
    3. Andrea F Presbitero, 2012. "Total Public Debt and Growth in Developing Countries," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(4), pages 606-626, September.
    4. Wamboye, Evelyn, 2012. "External debt, trade and FDI on economic growth of least developed countries," MPRA Paper 39031, University Library of Munich, Germany.
    5. Locke, Christopher G. & Ahmadi-Esfahani, Fredoun Z., 2001. "Debt overhangs and international agricultural trade," Journal of Policy Modeling, Elsevier, vol. 23(2), pages 189-216, February.
    6. Jansen, Karel, 1995. "The macroeconomic effects of direct foreign investment: The case of Thailand," World Development, Elsevier, vol. 23(2), pages 193-210, February.
    7. Yago, Milton & Morgan, Wyn, 2008. "The impact of policy reversal on economic performance in Sub-Saharan Africa," European Journal of Political Economy, Elsevier, vol. 24(1), pages 88-106, March.
    8. M. Kabir Hassan, 2001. "Financial Structure, Creditworthiness and Stock Market Development: A Cross-Country Analysis," Working Papers 0140, Economic Research Forum, revised 12 2001.
    9. Gharyeni, Abdellatif, 2015. "Dette Extérieure, Croissance Économique et Crises dans Les Pays En Développement : Un Bref Aperçu Théorique, Historique et Statistique
      [External Debt, Economic Growth and Crisis in Developing Count
      ," MPRA Paper 69244, University Library of Munich, Germany, revised 04 Feb 2106.
    10. Hasan Shahzad & Attiya Yasmin Javid, 2015. "Impact of Debt on Aggregate Investment and Productivity in Developing Asian Countries," PIDE-Working Papers 2015:127, Pakistan Institute of Development Economics.
    11. repec:tei:journl:v:11:y:2017:i:1:p:61-69 is not listed on IDEAS
    12. Tilemahos Efthimiadis & Panagiotis Tsintzos, 2012. "The Internal-External Debt Ratio and Economic Growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 941-951.
    13. Gharyeni, Abdellatif & Jouili, Mustapha, 2015. "Dette extérieure et croissance économique dans les pays à revenu intermédiaire : Essai empirique
      [External Debt and Economic Growth in the Middle-Income Countries :Empirical Test]
      ," MPRA Paper 69122, University Library of Munich, Germany, revised 31 Jan 2016.

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