Examining the Non-Linear Impact of External Debt on Economic Convergence

Thai Hong Le () and Lan Trinh Thi Phan ()
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Thai Hong Le: Vietnam National University, Hanoi, Vietnam, Postal: Faculty of Finance and Banking, VNU University of Economics and Business, Vietnam National University, Hanoi , Vietnam
Lan Trinh Thi Phan: Vietnam National University, Hanoi, Vietnam, Postal: Faculty of Finance and Banking, VNU University of Economics and Business, Vietnam National University, Hanoi, Vietnam

Journal of Economic Integration, 2022, vol. 37, issue 3, 377-422

Abstract: This article investigates the impact of external debt on economic convergence in 201 economies from 1990 to 2020. Panel data collected from the fiscal space database of the World Bank are analyzed using the conditional beta convergence framework. Results show that external debt negatively affects growth and there is no evidence to support the non-linear association. However, external debt influences the convergence speed in an inverted-U-shaped fashion. The economic convergence speeds up as the level of indebtedness increases to a threshold above which the convergence slows down as the level of foreign debts continues to increase. We also disaggregate external debt into its six sub-components and discover the non-linear effects of private debts and debts denominated in domestic currency on the convergence process.

Keywords: beta convergence; economic growth; external debt; fixed effects; non-linear (search for similar items in EconPapers)
JEL-codes: C23 E01 E62 H63 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0854

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