External Debt and Growth

By Helene Poirson, Luca A Ricci, Catherine A Pattillo

April 1, 2002

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Helene Poirson, Luca A Ricci, and Catherine A Pattillo. External Debt and Growth, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses the non linear impact of external debt on growth using a large panel data set of 93 developing countries over 1969–98. Results are generally robust across different econometric methodologies, regression specifications, and different debt indicators. For a country with average indebtedness, doubling the debt ratio would reduce annual per capita growth by between half and a full percentage point. The differential in per capita growth between countries with external indebtedness (in net present value) below 100 percent of exports and above 300 percent of exports seems to be in excess of 2 percent per annum. For countries that are to benefit from debt reduction under the current HIPC initiative, per capita growth might increase by 1 percentage point, unless constrained by other macroeconomic and structural economic distortions. Our findings also suggest that the average impact of debt becomes negative at about 160–170 percent of exports or 35–40 percent of GDP. The marginal impact of debt starts being negative at about half of these values. High debt appears to reduce growth mainly by lowering the efficiency of investment rather than its volume.

Subject: Debt burden, Debt service, Econometric analysis, Estimation techniques, Exports, External debt, Fiscal policy, Fiscal stance, International trade

Keywords: Asia and Pacific, Debt, Debt burden, Debt dummy, Debt indicator, Debt relief, Debt service, Debt stock, Debt to export, Debt variable, Debt-growth relationship, Estimation techniques, Exports, External debt, Fiscal stance, GDP, Global, Growth, HIPC initiative, Laffer curve, Middle East, Net present value, Spline, Sub-Saharan Africa, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/069
Stock No:

WPIEA0692002
ISBN:

9781451849073
ISSN:

1018-5941

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