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An Empirical Investigation Into the Determinants of External Indebtedness

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  • Menbere Workie Tiruneh

Abstract

This paper finds that poverty (the savings gap), income instability, and external factors that include debt service payments and capital flight to be the main causes of overseas borrowing by developing countries in the 1980s and 1990s. As far as the empirical strategy is concerned, the application of a panel data approach seems to be highly preferred, as it allows to control time-specific events that are linked to overseas borrowing, particularly given the rapid changes in the global macroeconomic environment in the past years. Moreover, this strategy helps to produce a more robust explanation by allowing to incorporate country-specific factors as developing countries themselves are heterogeneous in terms of their colonial heritages, geopolitical and strategic significance, and creditworthiness, all affecting the level of indebtedness and the potential bargaining power to manage the subsequent debt crisis.

Suggested Citation

  • Menbere Workie Tiruneh, 2004. "An Empirical Investigation Into the Determinants of External Indebtedness," Prague Economic Papers, University of Economics, Prague, vol. 2004(3), pages 261-277.
  • Handle: RePEc:prg:jnlpep:v:2004:y:2004:i:3:id:242:p:261-277
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    References listed on IDEAS

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    1. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
    2. Easterly, William, 1999. "The ghost of financing gap: testing the growth model used in the international financial institutions," Journal of Development Economics, Elsevier, vol. 60(2), pages 423-438, December.
    3. Hajivassiliou, Vassilis A., 1987. "The external debt repayments problems of LDC's : An econometric model based on panel data," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 205-230.
    4. Kaushik Basu, 2003. "Analytical Development Economics: The Less Developed Economy Revisited," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262523442, January.
    5. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    6. Eichengreen, Barry & Portes, Richard, 1986. "Debt and default in the 1930s : Causes and consequences," European Economic Review, Elsevier, vol. 30(3), pages 599-640, June.
    7. Bacha, Edmar L., 1990. "A three-gap model of foreign transfers and the GDP growth rate in developing countries," Journal of Development Economics, Elsevier, vol. 32(2), pages 279-296, April.
    8. R. Dornbusch, 1984. "External Debt, Budget Deficits and Disequilibrium Exchange Rates," Working papers 347, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Gary Dymski, 2011. "The International Debt Crisis," Chapters,in: The Handbook of Globalisation, Second Edition, chapter 6 Edward Elgar Publishing.
    10. Berg, Andrew & Sachs, Jeffrey, 1988. "The debt crisis structural explanations of country performance," Journal of Development Economics, Elsevier, vol. 29(3), pages 271-306, November.
    11. Taylor, Lance, 1994. "Gap models," Journal of Development Economics, Elsevier, vol. 45(1), pages 17-34, October.
    12. Claessens, Stijn & Detragiache, Enrica & Kanbur, Ravi & Wickham, Peter, 1996. "Analytical aspects of the debt problems of heavily indebted poor countries," Policy Research Working Paper Series 1618, The World Bank.
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    Citations

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    Cited by:

    1. Luke Emeka Okafor & Joanna Tyrowicz, 2010. "Saving less when there is more foreign lending? Foreign debt and savings in developing countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 13(3), pages 213-223.
    2. Luke Emeka Okafor & Joanna Tyrowicz, 2008. "Foreign Debt and Domestic Savings in Developing Countries," Working Papers 2008-06, Faculty of Economic Sciences, University of Warsaw.
    3. Gina Ioan, 2013. "Debt Burden in Romanian Economy," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(6), pages 89-94, December.

    More about this item

    Keywords

    panel data; external debt; heavily indebted poor countries;

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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