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Evaluating external debt sustainability across the globe: evidence from wavelet-based tests

Author

Listed:
  • Mumtaz Ahmed

    (COMSATS University Islamabad)

  • Zulekha Qadeer

    (COMSATS University Islamabad)

  • Muhammad Azam Khan

    (Abdul Wali Khan University Mardan
    Albukhary International University)

  • Toqeer Ahmed

    (COMSATS University Islamabad)

Abstract

This study aims to evaluate the sustainability of external debt in various global regions using wavelet-based unit root tests, which can account for structural breaks in the data. An important advantage of these wavelet-based unit root tests over the tests used by existing studies is that they provide complete picture of the behavior of time series considering both frequency as well as time domain which is ignored by existing studies available using econometric techniques based on time domain only. The empirical analysis covers six regions: South Asia, East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, the Middle East, North Africa, and Sub-Saharan Africa. The study utilizes annual time series data from 1970 to 2020 and employs state-of-the-art wavelet Augmented Dickey–Fuller (WADF) and Fourier WADF (FWADF) tests. To gain a deeper understanding of the data, two common debt series are considered: (i) total external debt stock and (ii) external debt stock as a percentage of gross national income (GNI). The selection of countries and time span is based solely on the availability of data for the chosen series. It is observed that for some of the countries, the results are data dependent. The results indicate that out of 117 countries, 41 have sustainable debt based on total external debt stock, and 61 have sustainable debt based on external debt stock as a percentage of GNI. The study also presents region-specific findings and policy recommendations.

Suggested Citation

  • Mumtaz Ahmed & Zulekha Qadeer & Muhammad Azam Khan & Toqeer Ahmed, 2025. "Evaluating external debt sustainability across the globe: evidence from wavelet-based tests," Quality & Quantity: International Journal of Methodology, Springer, vol. 59(2), pages 1045-1079, April.
    • Handle: RePEc:spr:qualqt:v:59:y:2025:i:2:d:10.1007_s11135-025-02053-6
    DOI: 10.1007/s11135-025-02053-6
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    More about this item

    Keywords

    Structural break; Spectral methods; Unit root tests; Non-linearity;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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