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Comparing good and bad borrowing in developing countries - a study of twin cases


  • Andreas Freytag

    () (Friedrich-Schiller-University Jena, and University of Stellenbosch)

  • Martin Paldam

    (Aarhus University, and Deakin University, Melbourne)


Some developing countries borrow abroad and experience good growth (above 2 %), which we call good growth, while others borrow and have poor growth (below 1 %), which we label as bad growth. The data comprise all 443 available observations of borrowing for one 5-year period and average growth rates for the following 10-year period. First, we confirm the standard result: The relation between borrowing and growth is negative, but explains little of the variations in the growth rate. Second, we select a subset of 59 twins of LDCs with matching borrowing (shares of GDP) in the same period. One twin has good growth and the other bad growth. The two sets are compared over a total of 12 main indicators from different fields. The good cases occur in countries with more economic and political freedom; also they are somewhat more developed, and have fewer natural resources. While this pattern is strong between samples, it is weak within samples.

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  • Andreas Freytag & Martin Paldam, 2012. "Comparing good and bad borrowing in developing countries - a study of twin cases," Global Financial Markets Working Paper Series 2012-31, Friedrich-Schiller-University Jena.
  • Handle: RePEc:hlj:hljwrp:31-2012

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    References listed on IDEAS

    1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799 Elsevier.
    2. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    3. Andreas Freytag & Gernot Pehnelt, 2006. "Debt Relief and Changing Governance Structures in Developing Countries," Jenaer Schriften zur Wirtschaftswissenschaft (Expired!) 31/2006, Friedrich-Schiller-Universit├Ąt Jena, Wirtschaftswissenschaftliche Fakult├Ąt.
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    Cited by:

    1. Matthias Bauer & Martin Zenker, 2012. "Market Discipline Under A Politicised Multilateral Fiscal Rule - Lessons from the Stability and Growth Pact Debate," Global Financial Markets Working Paper Series 2012-35, Friedrich-Schiller-University Jena.

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