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External Debt Sustainability and Institutions: A Model‐Based Approach

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  • Nachiket Thakkar
  • A. K. M. Mahbub Morshed

Abstract

External debt sustainability remains a critical concern for academics and policymakers. Existing literature, such as Bohn (1998), highlights a model‐based approach to debt sustainability but does not fully account for institutional factors. Using data from 127 countries, we examine the roles of institutional variables in determining the level of sustainable external debt. We find that stronger institutions allow countries to sustain higher levels of external debt. This suggests that institutional reforms can indirectly raise a country's external debt threshold by raising export earnings.

Suggested Citation

  • Nachiket Thakkar & A. K. M. Mahbub Morshed, 2026. "External Debt Sustainability and Institutions: A Model‐Based Approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 473-488, January.
    • Handle: RePEc:wly:ijfiec:v:31:y:2026:i:1:p:473-488
    DOI: 10.1002/ijfe.3153
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    References listed on IDEAS

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