Finally, the existence of a threshold bears on the question of causality. Pdf since 1980s, the mounting debts and debt payment service of pakistan due focus and consideration from the policy makers and economists. Michael and sulaiman 2012 examined the impact of external debt on the level of economic growth and the volume. In this paper, an attempt is made to study the external debt situation in ethiopia across its three economic regimes. Pdf the impact of external debt on economic growth. External debt is argued to propels economic growth when enhanced properly.
The effect of external debt on economic growth diva portal. The study concluded that external debt and inflation deter economic growth, while export earnings have positive impacts. In the short run the empirical results show that the budget deficit lags 1,2 have a positive and significant impact on current budget deficit while external debt. This, in turn, has revived the debate over the impact of a high external debt burden on economic growth. Empirical results indicate that public and private external debt has a negative impact on growth. The study used both descriptive and econometric tools. Indeed, one of the principal motivations for debtrelief. Over emphasis on negative impact of debt will cause morbid fear of debt, resulting in debt avoidance when it would have stimulated the economy by bringing in the much needed capital for. This paper examined the relationship between external debt and economic growth in nigeria for the period of 19812014. Some studies like audu and abula 2001 are of the view that it is only domestic debt that influences growth and not foreign debt.
This may result from inability to generate enough resources to meet commitments in debt servicing. The growthcumdebt models consider debt capacity in terms of the benefits and costs of. Domestic debt, external debt, debt structure and economic performance. The trend and descriptive analysis assessed the behavior of external debt and economic growth while the empirical analyses employed panel data regression in which a fixed. The evidence provided by the model supports the debt overhang hypothesis as the country has been on the wrong side of the debt laffer curve. An evaluation of relationship between public debt and. Since the great recession, the topic of financial debt has gained renewed attention. By fitting a production function model to annual data for the period 19802011, the study examines the dynamic effect of debt service, capital stock and labour force on the economic growth of the country.
This paper examines external debt and economic growth relationship in a panel of 48 subsaharan africa countries ssa for the period 19902017 using a twostep system general method of moments gmm technique. As the structure and infrastructure of a countrys economy become stronger, foreign investors are more. Instead, it was found that labour force has a strong relationship with. The impact of external debt on zambias economic growth. External debt is found to be a driver of economic growth if properly managed but its servicing rather than repayment is an inhibiting factor to economic growth. This paper analyses the relationship between debt servicing and economic growth in kenya for the period 1970 2008, focusing on both internal and external debt service. The literature is replete with empirical models that estimate the effect of external debt of developing countries on. The magnitude of total outstanding debt and the per capita debt increased. However, external foreign debt borrowing exb may result in some negative impacts such as a vicious cycle of increase in external debt, a decline in economic growth, huge budget deficits and an. Finally, section 3 gives summary and concluding remarks.
The relationship between public debt and economic growth has been discussed in recent years. External debt and domestic debt impact on the growth of. The effect of external debt on economic growth in sub. However, many studies show negative effects of public debt on economic growth. Even though foreign aid supported the annual budgets of botswana till the late 1980s, after the successful establishment of diamond mining, the country began to wean itself away.
External debt is the total public and private debt owed to nonresidents repayable in foreign currency, goods, or service. Equity finance declined as a proportion of foreign debt from 60% in the 1970s, to less than 30% in 1984. The role of external debt in the foreign direct investment. He is also of the opinion that once an initial stock of debt grows to a certain threshold, servicing them becomes a burden, and countries find themselves on the wrong side of the debt laffer curve, with debt crowding out investment and growth. External debt and economic growth journal of economic integration. This study analyzes trends and investigates the relationship between external debt and economic growth in the wamz using descriptive trend analysis and panel data analysis. The relationship between debt servicing and economic. Indeed, one of the principal motivations for debt relief. The decline in investment and growth performance of the highly indebted countries in the. However, foreign borrowing with poor external debt management causes a country to default and inability to meet its debt obligation caused for example by the lack of information on the nature, structure and magnitude of external debt were, 2001. In the short run, there is bidirectional causality between external debt and economic growth. The impact of external debt on economic growth is a debatable issue between scholars since the onset of the debt crisis in 1980s.
A priori expectation was that external debt would bring about economic growth. Effect of external borrowing and foreign aid on economic. Threshold estimation is conducted on data for 39 developing countries over 19842010. Pdf the relationship between external debt and economic.
Abdelhadi 20 paper is to explore the relationship between external debt and economic growth in jordan during the period of 19902011. N2 this study investigated the relationship between government external borrowing and economic growth, prompted by continuous increases in omans external debt to finance its annual budget. Economic growth, external debt, government investment, oman, public. The research is based on data obtained from 1980 to 2007 on external debt, private investment, foreign direct investment fdi, gross domestic product gdp and. Huge external debt does not necessarily imply a slow economic growth.
His paper shows that there is a positive and significant relationship between external debt and economic growth. The impact of external debt and fo reign direct investment. Foreign debt and economic growth wiley online library. If low growth causes high debt it is less likely that one would observe a distinct threshold in the debt and growth relationship. Botswana is a diamond dependent fast growing country in southern africa.
The main objective of this paper is to examine the influence of a change in external debt on the economic growth of zambia using time series data from 1970 to 2014. The relationship between external debt and economic. External debt, public investment, and growth in lowincome. The real effects of debt bank for international settlements. Some studies find no evidence of causal effects of public debt on economic growth e. This paper empirically examines the relationship between government foreign debt and the growth rate of per capita gdp based on a total sample of 77 countries. In addition, the paper will analyse the extent to which the external debt held by heavily indebted poor countries has impacted on their economic growth. Karagol 2002 however, found a unidirectional causality from debt to economic growth. Times series regression model has been used to determine the effect of public debt on economic growth in kenya and data was analyzed using eviews 8. The authors found that among 20 countries with high external debt, the external debt togdp ratio is strongly negatively correlated with economic growth rates, indicating that excessive indebtedness weakenseconomic growth in a country. Introduction the question here is whether the public debt incurred by nigeria which consists of domestic. Our data allow us to look at the impact of household, nonfinancial corporate and government debt separately. In bangladesh external debt to gdp ratio fluctuates from 6. This paper focuses on that neglected aspect by exploring the relationship between economic growth and development.
External debt, economic growth, highly indebted poor. External public debt and economic growth in morocco. The relationship between external debt and economic growth. Economic growth, external debt and budget deficit in. A theoretical model is developed to account for the influence of debt on the fdi growth nexus. The paper finds that external debt negatively affects economic growth in ssa. In addition, debt relief initiatives are crucial as evidenced in the lower negative debt effects on growth in hipcs sub sample relative to non hipcs. International journal of research in social sciences. Results of the study show that economic growth is not very much affected by external debt servicing. This study analyses the economic impact between foreign debt and economic growth in south africa. However, the negative effect of public debt on economic growth is more pronounced than that of private debt.
At the same time, the openness of the economy also positively impacts on economic growth at a rate of 1% increase in openness, increasing gdp by 0. The evidence suggests that increase in external debt will lead to decline in economic growth. The impact of external debts on economic growth project muse. About external debt variable, a 1% increase in external debt would increase gdp by 1. We estimated a debtgrowth model in a cointegration framework. Thus, if such a threshold exists, it is much more likely to be driven by a causal effect of debt on growth.
In this way, internal debt servicing is more harmful for the economic growth than the stock of internal debt because of the shrinking resources to finance development projects abbas and christensen, 2007. Intergenerational policies, public debt, and economic. However, 235 in the early 1980s, foreign investments declined relative to the value of foreign loans needed to finance economic growth. Theoretical literature there are several contributions by various economists and schools of thought as regards the subject matter of debt and economic growth. The relationship between external debt and foreign direct investment in d8 member countries 19952011 hossein ostadi, samin ashja department of economic, dehaghan branch, islamic azad university, isfahan, iran abstract.
The study estimates the effect of external debt on economic growth in subsaharan africa ssa during the 1980s when debt became a burden, and a majority of ssa countries defaulted. The literatuer revivew of external dept and economic growth relationship a number of studies have dealt with the external debt economic growth relationship during the last two decades. We investigate the influence of external debt on the fdi growth relationship. South africas loan increased from 40% to 70% of foreign debt. This study set out to analyze the impact of external debt on the economic growth of nigeria. The relationship between external debt and foreign direct. The underlying problems are on the servicing rather than on the repayment which is an impeding factor to economic growth. Over emphasis on negative impact of debt will cause morbid fear of debt, resulting in debt avoidance when it would have stimulated the economy by bringing in the much needed capital for infrastructural development and investment. Effect of external debt on economic growth of sudan. To that end, this researcher endeavours to explore the dynamics of external debt and economic growth in a vector autoregression analysis for zimbabwe for the period 1980 2012. How does public debt affect the indian macro economy.
Indeed, one of the principal motivations for debtrelief initiatives stems from the presumed deleterious impact of a heavy debt burden on per capita income growth. This thesis examines whether external debt affects the economic growth of selected heavily indebted poor african countries through the debt overhang and debt crowding out effect. The aim of the study was to investigate the impact of external debt on economic growth. This will involve an analysis of various debt ratios over time. Afxentiou and serletis 1996 found that no causality exists between debt and income.