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External Debt, Public Investment, and Growth in Low-Income Countries

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Listed:
  • Toan Quoc Nguyen
  • Benedict J. Clements
  • Rina Bhattacharya

Abstract

This paper examines the channels through which external debt affects growth in low-income countries. Our results suggest that the substantial reduction in the stock of external debt projected for highly indebted poor countries (HIPCs) would directly increase per capita income growth by about 1 percentage point per annum. Reductions in external debt service could also provide an indirect boost to growth through their effects on public investment. If half of all debt-service relief were channeled for such purposes without increasing the budget deficit, then growth could accelerate in some HIPCs by an additional 0.5 percentage point per annum.

Suggested Citation

  • Toan Quoc Nguyen & Benedict J. Clements & Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 03/249, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/249
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    References listed on IDEAS

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    3. Gupta, Sanjeev & Clements, Benedict & Baldacci, Emanuele & Mulas-Granados, Carlos, 2005. "Fiscal policy, expenditure composition, and growth in low-income countries," Journal of International Money and Finance, Elsevier, vol. 24(3), pages 441-463, April.
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    5. Sturm, Jan-Egbert, 2001. "Determinants of public capital spending in less-developed countries," CCSO Working Papers 200107, University of Groningen, CCSO Centre for Economic Research.
    6. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    7. Vito Tanzi & Hamid R Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
    8. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, vol. 52(1), pages 169-187, February.
    9. Andrew M. Warner, 1992. "Did the Debt Crisis Cause the Investment Crisis?," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1161-1186.
    10. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    11. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    12. Benedict J. Clements & Gabriela Inchauste & Nita Thacker & Thomas William Dorsey & Shamsuddin Tareq & Emanuele Baldacci & Sanjeev Gupta & Mark W. Plant, 2002. "Is the PRGF Living Up to Expectations?," IMF Occasional Papers 216, International Monetary Fund.
    13. repec:dgr:rugccs:200107 is not listed on IDEAS
    14. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
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