DEBT OVERHANG, FINANCIAL SECTOR DEVELOPMENT AND ECONOMIC GROWTH

Jen-Te Hwang, Chien-Ping Chung and Chieh-Hsuan Wang

Hitotsubashi Journal of Economics, 2010, vol. 51, issue 1, 13-30

Abstract: This paper uses panel data of 20 high external debt countries selected from Asia and Latin-America to investigate the financial sector development-debt-growth nexus within the framework of an endogenous growth and financial development mechanism. First, we found that among 20 high external debt countries, the external debt-to-GDP ratio is significantly negatively correlated with economic growth rates, indicating that excessive debt is detrimental to the growth of an economy. Second, we introduced the simultaneous GMM equations between financial sector development and economic growth to evaluate the interaction effects among economic growth, external debt, and financial sector development. In empirical results, we find that the negative impact of high debt on growth appears to operate through a strong negative effect, in terms of compulsion to resort to financially repressive policies. In addition, we also find a two-way relationship between financial sector development and economic growth.

Keywords: Debt Overhang Hypothesis; Dynamic Panel Data; Dynamic GMM; Financial Sector Development; Economic Growth (search for similar items in EconPapers)
JEL-codes: F34 F43 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/18602/HJeco0510100130.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:51:y:2010:i:1:p:13-30

DOI: 10.15057/18602

Access Statistics for this article

More articles in Hitotsubashi Journal of Economics from Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Digital Resources Section, Hitotsubashi University Library ().