Foreign Debt and Domestic Savings in Developing Countries
This paper approaches the question of potential causality between foreign debt and domestic savings in the context of developing countries. Literature provides evidence in as far as foreign debt and development is concerned, but little attention was given so far to internal potential for capital formation. We provide a theoretical framework and test its relevance using 1975-2004 data for two groups of countries: sub-Saharan Africa and Latin America with the Caribbean. With the use of instrumental variables we find negative impact of foreign debt on domestic savings especially in the long run. The results are not susceptible to the choice of countries or outliers. However, the relationship between foreign debt and savings seems to depend on debt accumulation gaining significance only after passing a country specific threshold.
|Date of creation:||Sep 2008|
|Date of revision:|
|Publication status:||Published in Latin American Business Review 9.3/4 (2008): pp. 189-226|
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- Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004.
"Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?,"
Santa Cruz Department of Economics, Working Paper Series
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- Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Center for International Economics, Working Paper Series qt7g18546z, Center for International Economics, UC Santa Cruz.
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