 Debt accumulation: do theoretical indicators explain country data?Global Business and Economics Review, 2010, vol. 12, issue 4, 286-328 Abstract: In an open-economy extension of the seminal Solow growth model theory suggests a number of hypotheses to explain a country's experience with debt accumulation. The empirical analysis evaluates theory's implications using time-series data within countries and across countries. For majority of countries, the rate of debt accumulation exceeds output growth, on average, over time. The domestic interest rate increases relative to the international interest rate; the higher the external debt is, within and across countries. A higher cost of borrowing forces countries to take more aggressive steps to reduce the current account deficit and in turn, external debt as a share of GDP. The lower the output growth the higher the risk premium over time. Across countries, a higher output growth supports a higher sustainable ratio of external debt to GDP. An increase in saving contributes to a significant improvement in the current account balance, as a share of GDP. Consistently, an increase in the risk premium correlates with higher savings (International Monetary Fund, Washington D.C., USA). Keywords: debt accumulation; savings; risk premium; output growth; adjustments; sustainability; external debt; theoretical indicators; country data. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:gbusec:v:12:y:2010:i:4:p:286-328 Access Statistics for this article More articles in Global Business and Economics Review from Inderscience Enterprises Ltd |
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