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External Debt and Growth

Author

Listed:
  • Ms. Hélène Poirson
  • Mr. Luca A Ricci
  • Ms. Catherine A Pattillo
Abstract
This paper assesses the non linear impact of external debt on growth using a large panel data set of 93 developing countries over 1969–98. Results are generally robust across different econometric methodologies, regression specifications, and different debt indicators. For a country with average indebtedness, doubling the debt ratio would reduce annual per capita growth by between half and a full percentage point. The differential in per capita growth between countries with external indebtedness (in net present value) below 100 percent of exports and above 300 percent of exports seems to be in excess of 2 percent per annum. For countries that are to benefit from debt reduction under the current HIPC initiative, per capita growth might increase by 1 percentage point, unless constrained by other macroeconomic and structural economic distortions. Our findings also suggest that the average impact of debt becomes negative at about 160–170 percent of exports or 35–40 percent of GDP. The marginal impact of debt starts being negative at about half of these values. High debt appears to reduce growth mainly by lowering the efficiency of investment rather than its volume.

Suggested Citation

  • Ms. Hélène Poirson & Mr. Luca A Ricci & Ms. Catherine A Pattillo, 2002. "External Debt and Growth," IMF Working Papers 2002/069, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/069
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    More about this item

    Keywords

    WP; debt; net present value; GDP; spline; Growth; external debt; debt relief; HIPC initiative; debt indicator; debt variable; Laffer curve; debt stock; debt to export; debt dummy; debt-growth relationship; Exports; Debt burden; Fiscal stance; Debt service; Estimation techniques; Global; Middle East; Sub-Saharan Africa; Asia and Pacific;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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