External Debt and Economic Growth in Emerging Economies: Panel Causality Analysis

Abstract

This paper is conducted to obtain information about the explanation power of GDP, consumer price index, and trade openness variables on total external debt and the relationship between these variables for six emerging countries: Argentina, Brazil, Russia, Turkey, Philippines, and South Africa. To control for cross-sectional dependency heterogeneity across cross-sectional units, using panel data on six emerging economies for the period 1990-2019, panel unit root tests, panel cointegration tests such as Gengenbach, Urbain and Westerlund, and Pedroni’s PDOLS, DOLSMG, and Heterogenous Dumistrescu & Hurlin Causality Test and Heterogenous VAR Model applied. The empirical results by appropriate estimators show the different effects of GDP, inflation and trade openness on long-run total external debt in the sample countries for the analysis period. There is also a causality from the total external debt to the GDP variable for all panel data. When the VAR model results for the units are examined, the lagged total external debt variable is meaningful in explaining the GDP in Russia and South Africa. In addition, it has been concluded that causality from the total external debt to the inflation and the total external debt variable is meaningful in explaining the inflation in the Philippines, South Africa, and Turkey.