25 Pages Posted: 15 Feb 2006
Date Written: December 2003
This paper examines the channels through which external debt affects growth in low-income countries. Our results suggest that the substantial reduction in the stock of external debt projected for highly indebted poor countries (HIPCs) would directly increase per capita income growth by about 1 percentage point per annum. Reductions in external debt service could also provide an indirect boost to growth through their effects on public investment. If half of all debt-service relief were channeled for such purposes without increasing the budget deficit, then growth could accelerate in some HIPCs by an additional 0.5 percentage point per annum.
Keywords: External Debt Debt Service Growth Public Investment
JEL Classification: F34 O40
Suggested Citation: Suggested Citation
Clements, Benedict and Bhattacharya, Rina and Nguyen, Toan Quoc, External Debt, Public Investment, and Growth in Low-Income Countries (December 2003). IMF Working Paper, Vol. , pp. 1-25, 2003. Available at SSRN: https://ssrn.com/abstract=880959