An Empirical Investigation Into the Determinants of External Indebtedness

Abstract

Abstract:This paper finds that poverty (the savings gap), income instability, and external factors that include debt service payments and capital flight to be the main causes of overseas borrowing by developing countries in the 1980s and 1990s. As far as the empirical strategy is concerned, the application of a panel data approach seems to be highly preferred, as it allows to control time-specific events that are linked to overseas borrowing, particularly given the rapid changes in the global macroeconomic environment in the past years. Moreover, this strategy helps to produce a more robust explanation by allowing to incorporate country-specific factors as developing countries themselves are heterogeneous in terms of their colonial heritages, geopolitical and strategic significance, and creditworthiness, all affecting the level of indebtedness and the potential bargaining power to manage the subsequent debt crisis.

Factors Affecting External Debt in Transition Economies: The Case of Central Asia and the Caucasus

“…The findings show that the balance of payments and domestic saving rates negatively affect the external debts, on the contrary, global interest rates and public expenditures positively affect the external debts. It was determined in the study conducted by Tiruneh (2004) with the panel data analysis method for the period of 1982-1998 that poverty, income variability, debt service, capital flight, and foreign exchange gap were the main determinants of the external debts. Lane (2004), with the panel data analysis method, studied the external debt and its determinants for 55 developing countries in the period of 1970-1998.…”

Original Sin, Currency Depreciation and External Debt Burden: Evidence From India

“…For a detailed explation of various determinants of external debt, one can refer the following research papers: Hajivassiliou, 1987;Pohit, 1991;Ferarro et al, 1994;Atingi, 2000;Kemal, 2001;Roodman, 2001;Easterly, 2002;Bilquees, 2003;Selami, 2004;Tiruneh, 2004;Bader et al, 2009;Colombo, 2009;Awan et al, 2011;Forslund et al, 2011;Batool et al, 2012;Bittencourt, 2013…”

External Debt Distress in South Asia: Evidence from Panel Data Analysis

“…According to Tiruneh (2004), the major determinants of external debt in heavily indebted and nonheavily indebted developing and least developed countries from 1982 to 1998 are capital flight, debt service payments, import to GDP ratio, income per capita and rate of growth of GDP. Colombo and Longoni (2009) in addition to economic variables, also incorporated socio-political variables such as quality of institutions and political risk in explaining the behaviour of external debt; whereas, Bittencourt (2015) incorporated economic variables along with trade openness ratio, urbanization and inequality as major determinants of external debt in young South American democracies.…”