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External Debt and Growth

  • Catherine Pattillo
  • Hélène Poirson
  • Luca Antonio Ricci

This paper assesses the non linear impact of external debt on growth using panel data for 93 developing countries. The estimates support a non-linear, hump-shaped, relationship between debt and growth, especially when the debt burden is measured relative to GDP. For a country with average indebtedness, doubling the debt ratio reduces growth by a third to a half percentage point after controlling for endogeneity. Our findings also suggest that the average impact of debt becomes negative at about 160–170 percent of exports or 35–40 percent of GDP and the marginal impact of debt at about half of these values.

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Article provided by Università di Perugia in its journal Review of Economics and Institutions.

Volume (Year): 2 (2011)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:pia:review:v:2:y:2011:i:3:n:2
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  1. Imbs, Jean & Rancière, Romain, 2005. "The Overhang Hangover," CEPR Discussion Papers 5210, C.E.P.R. Discussion Papers.
  2. Presbitero, Andrea F., 2008. "The Debt-Growth Nexus in Poor Countries: A Reassessment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 2, pages 1-28.
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  4. Orlando Rubio M. & Jair Ojeda J. & Enrique Montes U., . "Deuda Externa, Inversión y Crecimiento en Colombia, 1970-2002," Borradores de Economia 272, Banco de la Republica de Colombia.
  5. Chowdhury, Abdur R., 2001. "External Debt and Growth in Developing Countries: A Sensitivity and Causal Analysis," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  6. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  7. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  8. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472 National Bureau of Economic Research, Inc.
  9. Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
  10. Shuanglin Lin & Kim Sosin, 2001. "Foreign debt and economic growth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(3), pages 635-655, November.
  11. 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.
  12. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  13. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December.
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