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External Debts and Economic Growth when Debt Rating Matters

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  • Ly Dai Hung

    (VNU International School, Vietnam National University, Hanoi, Vietnam2Vietnam Institute of Economics (VIE), Hanoi, Vietnam3Thang Long Institute of Mathematics and Applied Sciences (TIMAS), Hanoi, Vietnam)

Abstract

The paper investigates the dependence pattern of economic growth on external debt supply by accounting for the safety of debts, measured by the sovereign debt rating. The method of cross-section regression is based on a sample of 145 advanced and developing economies with averaged data over the 1990–2019 period. The pattern of economic growth follows a U-shaped curve, for which the growth rate is first decreasing and then increasing on the external debt supply. A possible explanation can rely on the sovereign debt rating. For low supply of external debts, more supply of debts reduces the debt rating, which, in turn, lowers the economic growth rate. But for high enough supply of debts, more debts raise their rating, improving the growth rate. These results are robust on controlling for various determinants of economic growth and on the fixed effect panel regression.

Suggested Citation

  • Ly Dai Hung, 2021. "External Debts and Economic Growth when Debt Rating Matters," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 1-26, October.
  • Handle: RePEc:wsi:jicepx:v:12:y:2021:i:03:n:s1793993321500162
    DOI: 10.1142/S1793993321500162
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