The Debt-Growth Nexus in Poor Countries: A Reassessment

25 Pages Posted: 29 Nov 2010

See all articles by Andrea Filippo Presbitero

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

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Date Written: 2007

Abstract

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 could be 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.

Keywords: External Debt, HIPC, Debt Relief, Economic Growth

JEL Classification: O11, F34, C33, H63

Suggested Citation

Presbitero, Andrea Filippo, The Debt-Growth Nexus in Poor Countries: A Reassessment (2007). Economics Discussion Paper No. 2007-17. Available at SSRN: https://ssrn.com/abstract=1716357 or http://dx.doi.org/10.2139/ssrn.1716357

Andrea Filippo Presbitero (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

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