External Debt and Growth

49 Pages Posted: 14 Feb 2006

See all articles by Catherine A. Pattillo

Catherine A. Pattillo

International Monetary Fund (IMF) - Research Division

Hélène Poirson

International Monetary Fund (IMF) - Research Department

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Date Written: April 2002

Abstract

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.

Keywords: Growth, external debt, debt relief, HIPC initiative

JEL Classification: F21, F34, F43, O10, O40

Suggested Citation

Pattillo, Catherine and Poirson Ward, Helene and Ricci, Luca Antonio, External Debt and Growth (April 2002). IMF Working Paper No. 02/69, Available at SSRN: https://ssrn.com/abstract=879569

Catherine Pattillo (Contact Author)

International Monetary Fund (IMF) - Research Division ( email )

700 19th Street NW
Washington, DC 20431
United States

Helene Poirson Ward

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

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