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The debt-growth nexus in poor countries: a reassessment

  • Presbitero, Andrea F.

This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered. The estimation of a growth model, with a panel of 121 developing countries, supports a negative and linear relationship between past values of the NPV of external public debt and current economic growth. This is due to the ?extended debt overhang?, according to which a large indebtedness leads to misallocation of capital and discourage long-term investment and structural reforms. This work underlines the critical role of economic policies and institutions, the necessity of focusing on LICs and fostering macroeconomic stability.

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File URL: http://econstor.eu/bitstream/10419/19848/1/Presbitero.pdf
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Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2006 with number 22.

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Date of creation: 2006
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Handle: RePEc:zbw:gdec06:4745
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