IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

External Debt and Pro-Poor Growth

  • Maier, Rolf
Registered author(s):

    To reveal effects and consequences of high indebtedness on income poverty, this paper explores empirically a linear and non-linear impact of external debt on pro-poor growth in developing and transitional countries. To examine this hypothesis, we test the distribution effect of external debt to GDP, external debt to exports, and debt services to exports on the poorest 20 and 20 to 40 percent in a crosscountry approach. In addition, we estimate the total effect, i.e. the distribution and growth effect, to analyse potential trade-offs between the impact of unsustainable external debt levels on poverty through overall economic growth and via distribution. To test the poverty effects, we collect an irregular and unbalanced panel of time-series cross-country data on the first and second quintile of 58 developing and transitional countries for the period 1970 – 1999. We apply two econometric specifications, a growth equation and a system GMM estimation, to cover econometric issues, cross-country variation and dynamic aspects of within-country changes of the income of the poor. Empirical findings of the impact of the debt indicators on pro-poor growth have to be interpreted carefully due to inconsistent results of the sensitivity analyses. Thus results do not indicate an optimal external debt level with respect to pro?poor growth. On the contrary, higher external debt levels are associated with negative effects on the level of the income of the poorest 40 percent without exhibiting any significant effects on the growth rates. Thus concise policy recommendations with respect to debt sustainability levels and debt relief are difficult. A cautious conclusion would be that debt relief may affect the poor positively, but seems not to be a sufficient policy instrument for improved growth rates of the income of the poorest 40 percent. This policy proposal would be in line with calls for more poverty-targeted capital inflows, as even total debt relief would release only insufficient resources for poverty reducing activities. With this interpretation, however, we abstract from political economy and bad governance issues which may prevent poverty reducing debt relief initiatives.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://econstor.eu/bitstream/10419/19816/1/Maier.pdf
    Download Restriction: no

    Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Kiel 2005 with number 23.

    as
    in new window

    Length:
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:zbw:gdec05:3496
    Contact details of provider: Web page: http://www.ael.ethz.ch/

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
    2. Cohen, Daniel, 1996. "The sustainability of African debt," Policy Research Working Paper Series 1621, The World Bank.
    3. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
    4. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
    5. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    6. Hongyi Li & Heng-fu Zou, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," CEMA Working Papers 74, China Economics and Management Academy, Central University of Finance and Economics.
    7. Stephan Klasen, 2003. "In Search of The Holy Grail: How to Achieve Pro-Poor Growth ?," Ibero America Institute for Econ. Research (IAI) Discussion Papers 096, Ibero-America Institute for Economic Research.
    8. Borensztein, Eduardo, 1990. "Debt overhang, credit rationing and investment," Journal of Development Economics, Elsevier, vol. 32(2), pages 315-335, April.
    9. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    10. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    11. Pierre-Richard Agénor, 1991. "Output, devaluation and the real exchange rate in developing countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 18-41, March.
    12. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    13. AGENOR Pierre-Richard & IZQUIERDO Alejandro & FOFACK Hippolyte, . "IMMPA: A Quantitative Macroeconomic Framework for the Analysis of Poverty Reduction Strategies," EcoMod2003 330700003, EcoMod.
    14. de Aghion, Beatriz Armendariz & de Hinestrosa, Patricia Armendariz, 1995. "Debt relief, growth and price stability in Mexico," Journal of Development Economics, Elsevier, vol. 48(1), pages 135-149, October.
    15. Erwin Tiongson & Hamid Reza Davoodi & Sawitree S. Asawanuchit, 2003. "How Useful Are Benefit Incidence Analyses of Public Education and Health Spending," IMF Working Papers 03/227, International Monetary Fund.
    16. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
    17. Deshpande, Ashwini, 1997. "The debt overhang and the disincentive to invest," Journal of Development Economics, Elsevier, vol. 52(1), pages 169-187, February.
    18. Breen, R. & Garcia-Penalosa, C., 1999. "Income Inequality and Macroeconomic Volatility: an Empirical Investigation," G.R.E.Q.A.M. 99b11, Universite Aix-Marseille III.
    19. Giovanni Andrea Cornia, 2003. "The Impact of Liberalisation and Globalisation on Income Inequality in Developing and Transitional Economies," CESifo Working Paper Series 843, CESifo Group Munich.
    20. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    21. Easterly, William & Fischer, Stanley, 2001. "Inflation and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 160-78, May.
    22. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    23. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
    24. Grün, Carola & Klasen, Stephan, 2000. "Growth, Income Distribution, And well-Being In Transition Countries," Discussion Papers in Economics 26, University of Munich, Department of Economics.
    25. Cohen, Daniel, 1993. "Low Investment and Large LDC Debt in the 1980's," American Economic Review, American Economic Association, vol. 83(3), pages 437-49, June.
    26. Carlos Leite & Charalambos G. Tsangarides & Dhaneshwar Ghura, 2002. "Is Growth Enough? Macroeconomic Policy and Poverty Reduction," IMF Working Papers 02/118, International Monetary Fund.
    27. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 327-68, May.
    28. Elhanan Helpman, 1988. "Voluntary Debt Reduction: Incentives and Welfare," NBER Working Papers 2692, National Bureau of Economic Research, Inc.
    29. Kadima D. Kalonji & Boileau Loko & Raj Nallari & Montfort Mlachila, 2003. "The Impact of External Indebtednesson Poverty in Low-Income Countries," IMF Working Papers 03/61, International Monetary Fund.
    30. Andrea Brandolini & Anthony B. Atkinson, 2001. "Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 771-799, September.
    31. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    32. Richard Breen, 1999. "Income Inequality and Macroeconomic Volatility: An Empirical Investigation," Economics Series Working Papers 1999-W20, University of Oxford, Department of Economics.
    33. Ravallion, Martin & Shaohua Chen, 1996. "What can new survey data tell us about recent changes in distribution and poverty?," Policy Research Working Paper Series 1694, The World Bank.
    34. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    35. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    36. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    37. Hjertholm, P., 2000. "Analytical History of Heavily Indebted Poor Country (HIPC) Debt Sustainability Targets," Papers 00-03, Carleton - School of Public Administration.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:zbw:gdec05:3496. 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: (ZBW - German National Library of Economics)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.