Assessing the Short- and Long-run Real Effects of Public External Debt: The Case of Tunisia

Mohamed Ben Mimoun

African Development Review, 2013, vol. 25, issue 4, 587–606

Abstract: This study examines the effects of external debt on the economic growth of Tunisia both in the short run and the long run. We specify a growth equation based on the standard neoclassical growth model that we extend by adding public external debt indicators and some control variables. Annual time series data was gathered from 1970 to 2010. The Engel and Granger (1987) econometric techniques are employed in the empirical analysis in order to regress an error correction model (ECM) which allows estimating the short- and long-run consequences of debt on the Tunisian economic growth. The main results of this analysis can be summarized as follows: (1) Although the ratio of public external debt to GDP is relatively low in this country, the levels of external debt achieved are growth-damaging. We estimate that, on average, a 1 percentage point increase in the ratio of public external debt reduced annual growth rate by 0.15–0.17 percentage points. The impact is much higher in the long run in the sense that the long-run level of GDP per capita decreases by 0.27 per cent as this ratio increases by 1 per cent. (2) Our results also identified the existence, for Tunisia, of a threshold for the impact of external debt, which is evidence in agreement with the ‘debt overhang’ phenomenon. This threshold is estimated to around 30 per cent of GDP. (3) The traditional ‘crowding-out effect’ associated with service and interest payments of debt as well as the ‘resources-diversion effect’ associated with the extent of corruption in this country have been put forward in this analysis as two possible transmission channels of the detrimental consequences of external debt. (4) Finally, Tunisia will need to implement drastic policy changes that reduce fiscal deficit in order to prevent further deterioration.

Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Assessing the Short‐ and Long‐run Real Effects of Public External Debt: The Case of Tunisia (2013)
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:adb:adbadr:2096

Ordering information: This journal article can be ordered from
http://ordering.onli ... 1111/(ISSN)1467-8268

Access Statistics for this article

African Development Review is currently edited by Adeleke Oluwole Salami

More articles in African Development Review from African Development Bank African Development Bank Group, Avenue Joseph Anoma, 01 BP 1387 Abidjan 01, Côte d'Ivoire. Contact information at EDIRC.
Bibliographic data for series maintained by John Anyanwu ().