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External Debt, Informal Economy and Growth

Author

Listed:
  • Mahmoud Sami Nabi

    (LEGI-Polytechnic School of Tunisia and University of Sousse, IHEC)

  • Imed Drine

    (UNU- WIDER)

Abstract

We develop an endogenous growth model with overlapping generations taking into account important characteristics of the developing countries: high public external debt and large informal sector. We show that an increasing of the public external debt has two opposite effects. On the one hand, it enhances growth through a positive externality affecting the productivity of private firms. On the other hand, it inhibits growth by ousting the external financing of private firms and enlarging the less efficient informal sector. These two effects generate a non-linear effect of the public external debt on growth and an optimal share of the public external indebtedness. We also show that, under a certain condition, the enlargement of the informal sector could be accompanied by higher growth.

Suggested Citation

  • Mahmoud Sami Nabi & Imed Drine, 2009. "External Debt, Informal Economy and Growth," Economics Bulletin, AccessEcon, vol. 29(3), pages 1695-1707.
  • Handle: RePEc:ebl:ecbull:eb-09-00303
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    References listed on IDEAS

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    Cited by:

    1. Ceyhun Elgin & Ferda Erturk, 2016. "Is Informality a Barrier to Convergence?," Economics Bulletin, AccessEcon, vol. 36(4), pages 2556-2568.
    2. Chandril Bhattacharyya & Dibyendu Maiti, 2023. "Informal Sector, Innovation and Growth," Working papers 334, Centre for Development Economics, Delhi School of Economics.
    3. Loudi Njoya & Ibrahim Ngouhouo & Simplice A. Asongu & Friedrich Schneider, 2022. "The role of economic prosperity on informality in Africa: evidence of corruption thresholds from PSTR," Working Papers of the African Governance and Development Institute. 22/012, African Governance and Development Institute..
    4. Loudi Njoya & Ibrahim Ngouhouo & Moussa Njoupouognigni & Schneider Friederich & Zenabou Tourere, 2024. "Can we understand the simultaneous evolution between economic and informality growth in Africa? A preliminary explanation," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 398-414, January.
    5. Kerem Cantekin & Ceyhun Elgin, 2017. "Extent And Growth Effects Of Informality In Turkey: Evidence From A Firm-Level Survey," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(05), pages 1017-1037, December.
    6. Brahim Gaies & Mahmoud‐Sami Nabi, 2021. "Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 736-761, October.
    7. Afonso, Oscar & Neves, Pedro Cunha & Pinto, Tiago, 2020. "The non-observed economy and economic growth: A meta-analysis," Economic Systems, Elsevier, vol. 44(1).
    8. Maiti, Dibyendu & Bhattacharyya, Chandril, 2020. "Informality, enforcement and growth," Economic Modelling, Elsevier, vol. 84(C), pages 259-274.
    9. Pratibha Saini & Krishna Muniyoor, 2021. "Revisiting The Debt–Growth Nexus: Evidence From India," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 66(231), pages 151-172, October –.

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    More about this item

    Keywords

    growth; informality; public external debt;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • F3 - International Economics - - International Finance

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