IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpif/0512007.html
   My bibliography  Save this paper

External Debt Sustainability: Theory and Empirical Evidence

Author

Listed:
  • Marco Arnone

    (Catholic University of Milan)

  • Luca Bandiera

    (World Bank)

  • Andrea Presbitero

    (Politechnic University of Marche Italy)

Abstract

This paper is a review of the different approaches on external debt sustainability. The Heavily Indebted Poor Country (HIPC) Initiative was launched to assure a permanent exit from debt dependence. However, the IMF-World Bank program is not without faults, in particular for what concerns debt sustainability analysis. The aim of this work is to present the IMF-World Bank approach to debt sustainability, together with the other approaches in the literature. We show that a new and broader framework is emerging to address the main shortcomings of the standard analysis, namely, the effects that large external debts and deficits have on growth and the macroeconomic environment.

Suggested Citation

  • Marco Arnone & Luca Bandiera & Andrea Presbitero, 2005. "External Debt Sustainability: Theory and Empirical Evidence," International Finance 0512007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0512007
    Note: Type of Document - pdf; pages: 48
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0512/0512007.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, May.
    2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    3. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, University Library of Munich, Germany.
    4. repec:rus:hseeco:123922 is not listed on IDEAS
    5. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, World Bank Group, vol. 20(3), pages 341-365.
    6. Rodriguez, Carlos Alfredo, 1989. "The external effects of public sector deficits," Policy Research Working Paper Series 299, The World Bank.
    7. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank.
    8. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, University Library of Munich, Germany.
    9. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 5(Fall).
    10. Annalisa Fedelino & Alina Kudina, 2003. "Fiscal Sustainability in African HIPC Countries; A Policy Dilemma?," IMF Working Papers 2003/187, International Monetary Fund.
    11. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    12. Toan Quoc Nguyen & Benedict J. Clements & Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 2003/249, International Monetary Fund.
    13. Morris Goldstein, 2003. "Debt Sustainability, Brazil, and the IMF," Working Paper Series WP03-1, Peterson Institute for International Economics.
    14. Sebastian Edwards, 2003. "Debt relief and fiscal sustainability," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(1), pages 38-65, March.
    15. Helene Poirson Ward & Luca A Ricci & Catherine A Pattillo, 2002. "External Debt and Growth," IMF Working Papers 2002/069, International Monetary Fund.
    16. Jakob E Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 2004/046, International Monetary Fund.
    17. Dooley, Michael P, 1989. "Debt Relief and Leveraged Buy-Outs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 71-75, February.
    18. Kamau Thugge & Anthony R. Boote, 1997. "Debt Relief for Low-Income Countries and the HIPC Initiative," IMF Working Papers 1997/024, International Monetary Fund.
    19. Eaton, Jonathan, 1993. "Sovereign Debt: A Primer," World Bank Economic Review, World Bank Group, vol. 7(2), pages 137-172, May.
    20. Claessens, Stijn & Detragiache, Enrica & Kanbur, Ravi & Wickham, Peter, 1996. "Analytical aspects of the debt problems of heavily indebted poor countries," Policy Research Working Paper Series 1618, The World Bank.
    21. Yan M Sun, 2004. "External Debt Sustainability in HIPC Completion Point Countries," IMF Working Papers 2004/160, International Monetary Fund.
    22. Claudio M. LOSER, 2004. "External Debt Sustainability: Guidelines For Low- And Middle-Income Countries," G-24 Discussion Papers 26, United Nations Conference on Trade and Development.
    23. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
    24. Asiedu, Elizabeth, 2003. "Debt relief and institutional reform: a focus on Heavily Indebted Poor Countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(4), pages 614-626.
    25. Peter Hjertholm, 2001. "Debt Relief and the Rule of Thumb: Analytical History of HIPC Debt Sustainability Targets," WIDER Working Paper Series DP2001-68, World Institute for Development Economic Research (UNU-WIDER).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sorin Calea & Ioana Mihut & Mihaela Lutas, 2014. "The Sustainability Of Romania’S External Debt During The Recent Financial Crisis," CES Working Papers, Centre for European Studies, Alexandru Ioan Cuza University, vol. 6(2), pages 46-56, July.
    2. Bianca AVRAM POP & Simona SABOU, 2018. "The Role Of Agriculture In Romanian Development," Business Excellence and Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 8(1), pages 5-18, March.
    3. Heylen, Fanny, 2010. "Analyzing the poverty impact of the enhanced Heavily Indebted Poor Countries (HIPC) initiative in Bolivia," Documentos de trabajo 1/2010, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    4. Zaman, Gheorghe & Georgescu, George, 2011. "Sovereign risk and debt sustainability: warning levels for Romania," MPRA Paper 32924, University Library of Munich, Germany.
    5. Dobdinga Fonchamnyo, 2009. "Debt Relief Incentives in Highly Indebted Poor Countries (HIPC): An Empirical Assessment," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(3), pages 322-335, August.
    6. repec:kap:iaecre:v:15:y:2009:i:3:p:322-335 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Adegboyega Raymond Rahaj, 2018. "Eternal Debt and Economic Growth in Nigeria: An ARDL Approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 14(4), pages 581-596, AUGUST.
    2. Gul, Adnan, 2008. "Is external debt an effective way of bringing economic reforms?," MPRA Paper 10979, University Library of Munich, Germany.
    3. Cassimon, Denis & Moreno-Dodson, Blanca & Wodon, Quentin, 2008. "Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts," MPRA Paper 11077, University Library of Munich, Germany.
    4. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.
    5. Johansson, Pernilla, 2010. "Debt Relief, Investment and Growth," World Development, Elsevier, vol. 38(9), pages 1204-1216, September.
    6. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany.
    7. repec:dau:papers:123456789/4089 is not listed on IDEAS
    8. Drine, Imed & Nabi, M. Sami, 2010. "Public external debt, informality and production efficiency in developing countries," Economic Modelling, Elsevier, vol. 27(2), pages 487-495, March.
    9. Ralf Hepp, 2005. "Can Debt Relief Buy Growth?," International Finance 0510003, University Library of Munich, Germany.
    10. Abutaleb, Ahmed S. & Hamad, Marwa G., 2012. "Optimal foreign debt for Egypt: A stochastic control approach," Economic Modelling, Elsevier, vol. 29(3), pages 544-556.
    11. Alvarez-Plata, Patricia & Brück, Tilman, 2008. "External Debt in Post-Conflict Countries," World Development, Elsevier, vol. 36(3), pages 485-504, March.
    12. Presbitero, Andrea F., 2008. "The Debt-Growth Nexus in Poor Countries: A Reassessment," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-28.
    13. Cordella, Tito & Missale, Alessandro, 2013. "To give or to forgive? Aid versus debt relief," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 504-528.
    14. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007. "Regime changes and the sustainability of fiscal imbalance in East Asian countries," Economic Modelling, Elsevier, vol. 24(6), pages 878-894, November.
    15. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    16. Ralf Hepp, 2005. "Health Expenditures Under the HIPC Debt Initiative," International Finance 0510005, University Library of Munich, Germany.
    17. Sandra Marcelino & Ivetta Hakobyan, 2014. "Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth," IMF Working Papers 2014/230, International Monetary Fund.
    18. Danny Cassimon & Dennis Essers & Karel Verbeke, 2015. "What to do after the clean slate? Post-relief public debt sustainability and management," BeFinD Working Papers 0103, University of Namur, Department of Economics.
    19. Claudio Raddatz, 2011. "Multilateral Debt Relief through the Eyes of Financial Markets," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1262-1288, November.
    20. HEPP, Ralf, 2010. "CONSEQUENCES OF DEBT RELIEF INITIATIVES IN THE 1990s," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    21. Siddique, Abu & Selvanathan, E.A. & Selvanathan, Saroja, 2016. "The impact of external debt on growth: Evidence from highly indebted poor countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 874-894.

    More about this item

    Keywords

    HIPC Initiative; Debt Sustainability; Debt Relief; External Debt.;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpif:0512007. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.