Cover IMF Working Papers
External Debt and Growth
Author: Mr. Luca A Ricci and Ms. Catherine A Pattillo
Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 069
Language:
English
Publication Date:
01 Apr 2002
DOI:
https://doi.org/10.5089/9781451849073.001
ISBN:
9781451849073
ISSN:
1018-5941
Pages:
48
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund