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Capital Accumulation,External Indebtedness and Macroeconomic Performance of EmergingCountries

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  • Felissa Silva de Sousa Marques
  • José Luis Oreiro
  • MarcosRocha

Abstract

This paper aims at presenting a nonlinear post Keynesian growth model to evaluate at the theoretical and empirical levels the relationship between external indebtedness and economic growth in emerging countries. To this end, a post Keynesian endogenous growth model is presented, in which: (1) the desired rate of capital accumulation is assumed to be a nonlinear function of external indebtedness as a share of capital stock; (2) an endogenous country risk premium is assumed to be an increasing (linear) function of external indebtedness (as a share of capital stock); (3) there is a fixed exchange rate regime and perfect capital mobility in the sense of Mundell and Fleming. The main theoretical result of the model is the existence of two long-run equilibrium positions, one of which has a high level of external indebtedness (as a ratio of capital stock) and a low profit rate and the other has a low level of external indebtedness and a high profit rate. This means that "excessive" external indebtedness can result in stagnant growth due to its negative effect on the rate of profit. To test the effects of external indebtedness on the rate of economic growth in emerging economies, a dynamic panel is estimated to evaluate whether external debt has an effective negative influence on economic growth in emerging countries. An empirical test of demand-led growth equations with a dynamic panel for fifty-five emerging countries confirms the potential negative effects of external debt on long-term growth rates in the sample countries.
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  • Felissa Silva de Sousa Marques & José Luis Oreiro & MarcosRocha, 2011. "Capital Accumulation,External Indebtedness and Macroeconomic Performance of EmergingCountries," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 108, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    • Handle: RePEc:anp:en2009:108
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    References listed on IDEAS

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    1. Anthony P. Thirlwall, 2011. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," PSL Quarterly Review, Economia civile, vol. 64(259), pages 429-438.
    2. Paul Davidson, 2002. "Financial Markets, Money and the Real World," Books, Edward Elgar Publishing, number 2467.
    3. Paul Davidson, 1978. "Money and the Real World," Palgrave Macmillan Books, Palgrave Macmillan, edition 0, number 978-1-349-15865-2, October.
    4. Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(2), pages 273-288, March.
    5. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. Bortz Pablo Gabriel & Michelena Gabriel & Toledo Fernando, 2018. "Foreign debt, conflicting claims and income policies in a Kaleckian model of growth and distribution," Journal of Globalization and Development, De Gruyter, vol. 9(1), pages 1-22, June.
    2. Köhler, Karsten, 2016. "Currency devaluations, aggregate demand, and debt dynamics in an economy with foreign currency liabilities," IPE Working Papers 78/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    3. Alimov, Behzod, 2022. "The dynamic effects of debt and equity inflows: Evidence from emerging and developing countries," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    4. Woon Kan Yap & Fakarudin Kamarudin & Jenny Gryzelius, 2025. "External debt, state ownership and technical efficiency: A stochastic frontier analysis of emerging economies," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 24(1), pages 123-150, January.

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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