The debt-growth nexus in poor countries: a reassessment

Andrea Presbitero

No 22, Proceedings of the German Development Economics Conference, Berlin 2006 from Verein für Socialpolitik, Research Committee Development Economics

Abstract: This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered. The estimation of a growth model, with a panel of 121 developing countries, supports a negative and linear relationship between past values of the NPV of external public debt and current economic growth. This is due to the ?extended debt overhang?, according to which a large indebtedness leads to misallocation of capital and discourage long-term investment and structural reforms. This work underlines the critical role of economic policies and institutions, the necessity of focusing on LICs and fostering macroeconomic stability.

Keywords: External Debt; HIPC; Debt Relief; Economic Growth (search for similar items in EconPapers)
JEL-codes: C33 F34 H63 O11 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (7)

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