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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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Paper provided by Friedrich-Schiller-University Jena in its series Global Financial Markets Working Paper Series with number 2012-31.

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Date of creation: 2012
Date of revision:
Handle: RePEc:hlj:hljwrp:31-2012
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  1. Hristos Doucouliagos & Mehmet Ulubasoglu, 2006. "Democracy and Economic Growth: A Meta-Analysis," Economics Series 2006_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  2. Barro, R.J., 1989. "Economic Growth In A Cross Section Of Countries," RCER Working Papers 201, University of Rochester - Center for Economic Research (RCER).
  3. Maurice Obstfeld and Kenneth Rogoff., 1994. "The Intertemporal Approach to the Current Account," Center for International and Development Economics Research (CIDER) Working Papers C94-044, University of California at Berkeley.
  4. Andreas Freytag & Gernot Pehnelt, 2006. "Debt Relief and Changing Governance Structures in Developing Countries," Jenaer Schriften zur Wirtschaftswissenschaft 31/2006, Friedrich-Schiller-Universit├Ąt Jena, Wirtschaftswissenschaftliche Fakult├Ąt.
  5. 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.
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