Low- and middle-income countries’ external debt cycle and global economic prospect

Ruohan Wang, Xinya Wang and Yi Xue

International Review of Economics & Finance, 2024, vol. 96, issue PA

Abstract: The rapid growth of peripheral countries has brought significant changes to the global economic and financial system, making it crucial to examine the relationship between their cyclical debt fluctuations and the world economy. Using the Bayesian dynamic factor model, this paper documents the presence of a set of common factors, known as global debt cycles, in the external debt accumulation of the low- and middle-income countries (LMICs). The interesting finding is that this debt cycles differ from well-known factors for global financial cycles in capital flows, such as U.S. monetary policy and global risk aversion. Even after controlling the factors for global financial cycles, our results reveal a significantly negative predictive effect of estimated debt cycles on global economic growth. Moreover, we demonstrate that this negative effect is primarily dominated by LMICs occupying prominent positions in international debt market networks, especially during the post-2008 financial crisis period. These findings emphasize the increasing importance of peripheral countries in the world system, which has been largely ignored in existing literature.

Keywords: External debt; Global debt cycle; Global economy; Low- and middle-income countries (search for similar items in EconPapers)
JEL-codes: F34 F43 F65 O11 O31 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056024004982
Full text for ScienceDirect subscribers only

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:eee:reveco:v:96:y:2024:i:pa:s1059056024004982

DOI: 10.1016/j.iref.2024.103506

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().