Does External Debt Affect Economic Growth: Evidence from Developing Countries

Safia Shabbir ()
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Safia Shabbir: State Bank of Pakistan

No 63, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: This paper explores long run relationship between external debt and economic growth in developing economies. By using a sample of 70 developing countries over a period of 1976-2011, the study finds that increase in external debt stock reduces the fiscal space to service external debt liabilities and thus dampens the economic growth. Moreover, it reduces the level of private fixed capital formation in the country. Exploring the role of investment towards economic growth, we find that both the foreign direct investment and the fixed capital formation help these economies to grow, while openness contributes to the welfare of the developing economies.

Keywords: External debt; Growth; Economic growth (search for similar items in EconPapers)
JEL-codes: F34 F43 O47 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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