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The Debt-Growth Nexus in Poor Countries: A Reassessment

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  • Presbitero, Andrea F.

Abstract

The paper investigates the relationship between external debt and economic growth, focusing on the role played by the policy and institutional framework. Results for a panel of 114 developing countries show that the debt-growth nexus depends on institutions and policies. The Debt-Laffer curve looses statistical significance once institutional quality is controlled for and debt overhang seems to be at work exclusively in countries with sound institutions. On the contrary, external debt proves to be irrelevant for countries with weak institutions. A policy implication is that efficient debt relief policies should be tailored to country-specific characteristics and conditional to a certain level of institutional quality.

Suggested Citation

  • Presbitero, Andrea F., 2008. "The Debt-Growth Nexus in Poor Countries: A Reassessment," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-28.
    • Handle: RePEc:zbw:ifweej:7397
    DOI: 10.5018/economics-ejournal.ja.2008-30
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    More about this item

    Keywords

    External debt; HIPC; debt relief; economic growth;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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