External Debt in Macroeconomics: A Review
30 Pages Posted: 3 Mar 2016
Date Written: February 25, 2016
The paper provides a concise review of the treatment of external debt in macroeconomic analyses. In this regard, the paper considers: the development of indicators to quantify external debt alongside theoretical and empirical developments in which the indicators are utilized. Following the inherent limitations, the theoretical and empirical studies tend to employ more than one indicator. Both theoretical and empirical frameworks are distinguished in terms of whether they are static or dynamic in nature. The theoretical studies were also distinguished in terms of the utilization of discrete and continuous frameworks. The empirical models were distinguished with reference to linearity and nonlinearity of the underlying premises. The review enables the reader to appreciate the relative advantages and disadvantages of the various frameworks and their contextual relevance. A key theme that runs through the studies reviewed is the impact of external debt on economic performance. The results, which are context specific, are mixed.
Keywords: External Debt, Debt-to-GDP Ratio, Debt Service, Difference and Differential Equations, Static and Dynamic Models
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