Does external debt lead to economic growth in Pacific island countries

Jayaraman, Tiruvalangadu K.; Lau, Evan

doi:10.1016/j.jpolmod.2008.05.001

Cited by 70 publications

(39 citation statements)

References 21 publications

(25 reference statements)

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“…Contrary to the above findings, Jayaraman and Lau (2009) found that higher debt levels can promote higher economic growth. Their study involves six Pacific island countries, covering the period 1988-2004, and is based on regressing external debt stock, exports and the budget deficit (all as a percentage of GDP) against GDP.…”

Section: The Relationship Between External Debt and Economic Growth: contrasting

confidence: 87%

The impact of external debt on growth: Evidence from highly indebted poor countries

Siddique

Selvanathan

2016

Journal of Policy Modeling

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Section: The Relationship Between External Debt and Economic Growth: contrasting

confidence: 87%

The impact of external debt on growth: Evidence from highly indebted poor countries

Siddique

Selvanathan

2016

Journal of Policy Modeling

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“…The rhetoric has always been is external debt necessary for the progress of countries? Findings on external debt and economic growth has been diverse and contradictory especially on accounts of the metric used in measuring external debt (for-instance debt outstanding or debt service), the empirical approach used and also the channel used (savings and investment as a channel).Notable findings in this regard are Jayaraman and Lau (2009); Warner (1992) who found a positive impact of external debt on growth. Reinhart and Rogoff (2010); Were (2001); Iyoha (1999); Fosu (1999); Elbadawi et al (1996) found a negative relationship between external debt and growth.…”

mentioning

confidence: 99%

External Debt and Economic Growth: Two-Step System GMM Evidence for Sub-Saharan Africa Countries

Asafo

2019

International Journal of Business, Economics and Management

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This paper examines external debt and economic growth relationship in a panel of 48 Sub-Saharan Africa countries (SSA) for the period 1990-2017 using a two-step system General Method of Moments (GMM) technique. Our study shows that contemporaneously, external debt has a negative and statistically significant impact on GDP growth. However, the first lag of external debt variables stimulates GDP growth. The implication is that external debt accumulated in the previous period makes funds available for growth enhancing expenditure in the next period. Furthermore, our study found no evidence of a non-linear relationship between debt and economic growth. Lastly, we found that the deleterious impact of external debt on GDP growth does not preclude poor or rich SSA countries. We recommend the adoption of state-of-the-art measures in collecting domestic revenue to complement external revenue sources. In addition, we advocate for strong macroeconomic environment in SSA so that yield negotiation on the debt will not dissipate the coffers of SSA countries via high debt servicing cost. Contribution/Originality: This study uses new estimation methodology to unravel the external debt and economic growth nexus in Sub-Saharan Africa countries. 1. INTRODUCTION Sustainable economic growth and development is the main concern for all economies worldwide , especially Sub-Saharan Africa (SSA) 1 countries that happen to find themselves at the lower end of the growth chart. The quest to achieve these goals of economic growth and sustainable development calls for huge outlays which invariably comes from external sources with high servicing cost which perhaps, has plunged SSA into an uncomfortable fiscal position. Researchers like (Eaton, 1993) argues that external debt complements domestic savings and investment, hence it enhances growth. Of different opinion is Krugman (1988) who posits that debt servicing causes disruptions in an economy, hence it discourages investment and economic growth. The impact of the global economic downturn in the mid-1980s on developing economies, including the debt crisis, was such that the 1980s is often referred to as the lost decade for Africa (Iyoha, 1999). The debt burden on SSA after the lost decade has stagnated many of its economies which led to the adoption of SAPS 2 aimed at reducing the SSA fiscal imbalances. However, the pace of 1 According to the United Nations, Sub-Saharan Africa countries are all African countries who are fully or partially located south of the Sahara.

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“…Vietnam production depends heavily on imports, especially the import of machinery and raw materials, which account for more than 90% total import revenue (GSO, 2016). Thus, using total value of exports and imports to GDP will be double counting (Nguyen, 2012); (2) This indicator was also used by Jayaraman and Lau (2009) to represent the openness of the economy when studying the effects of external debt on economic growth of Pacific countries.…”

Section: Methodsmentioning

confidence: 99%