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effect of external debt on economic growth pdf

In short run, the debt stock does not have any significant effect. performance of EA member states, whilst its short-run effect may be positive depending on the country. External debt is a vital source of public financing in developing countries and carries the potential to play a key role in promoting economic growth. By fitting a production function model to annual data for the period 1980-2011, the study examines the dynamic effect of debt service, capital stock and labour force on the economic growth of the country. Two broad categories of effects of high debt regimes † Short-run effects capturing the resilience of the economy to shocks: o potential losses for the economy o time spent at the ZLB o role played by private deleveraging † Long-run effects on output and growth. Specifically, the study tries to answer the question whether external debt and debt servicing have any significant effect on Economic Growth. External debt is acquired to contribute meaningfully to the economy but the future debt service payment poses a threat to economic growth. Long run significant positive effect of external public debt stock on GDP growth have been found from this investigation. This study investigates the effect of the external debt burden on economic growth and development of Nigeria .It adopted regression analysis of OLS on secondary data sourced from CBN, Economical and Financial review, Business times, Financial Standard and relevant publication from Nigeria on variable like National Income, Debt Service Payment, External Reserves, Interest rate among … Impact of the Public Debt Level on Economic Growth and Infl ation The authors Reinhart, Rogoff (2010a), in their studies on the basis of long-term historical data, analyze the correlation between the economic growth, infl ation and levels of government and the external debt. This study analyses the economic impact between foreign debt and economic growth in South Africa. Another contribution of this paper is in estimating the long-run effects of public debt build-up on economic growth, regardless of whether there exists a threshold effect from debt-to-GDP ratio on output growth. Several policy implications emerge from the study. Regarding the growth effect of public debt, conventional view argues that public debt positively affects economic growth in the short run by stimulating the aggregate demand (see for instance, Elmendorf & Mankiw, 1999).However, theoretical literature mostly points to a negative debt-growth link in the long run through different channels. This study investigates the effect of the external debt burden on economic growth and development of Nigeria .It adopted regression analysis of OLS on secondary data sourced from CBN, Economical and Financial review, Business times, Financial Standard and relevant publication from Nigeria on variable like National Income, Debt Service Payment, External Reserves, Interest rate among … 2 Abstract: This paper examines the determinants of economic growth for Pakistan, the impact of domestic debt and external debt on the economic growth of Pakistan separately over period of 1980 to 2010, using Ordinary Least Square (OLS) approach to Cointegration, Unit Root Testing, Serial Correlation Testing, test for checking Heteroskedasticity and CUSUM test of stability. economic growth (debt overhang). (2011) estimate much lower threshold for the panel of 93 developing countries. We used the ADF, PP and KPSS tests for unit roots and the Johansen-Juselius multivariate approach to cointegration to test for stationarity and a long-run relationship among variables. They conducted the analysis on a sample of 44 countries. This study is therefore an effort to determine the effect of Public Debt on Economic Growth in Kenya. Their findings contrast the finding of Checherita and Rother (2010) . This study is therefore an effort to determine the effect of Public Debt on Economic Growth in Kenya. Our data allow us to look at the impact of household, non-financial corporate and government debt separately.1 Using variation across countries and over time, we examine the impact of the movement in debt on growth.2 Our results support the view that, beyond a certain level, debt is bad for growth. These included Kenya, Tanzania, Uganda, and Rwanda. The results of these studies, however, are somewhat ambiguous with regard to the effect of external debt on economic growth. Substantial decrease in the external debt … This study aimed at finding out the effect public debt on the level of private investment and economic growth in Kenya. external debt and economic growth, even if, they end up with different conclusive results. External Debt and Economic Growth: The Case of Emerging Economy Author(s): Sami Al Kharusi and Mbah Stella Ada Source: Journal of Economic Integration, Vol. Boboye and Ojo (2012) studied the effect of external debt on economic growth in Nigeria. According to Ajayi (1991), the debt management systems also have a direct macro economic impact on the borrowing countries. the stock of external debt and growth. Chart 11: Government debt-to-GDP growth in OECD countries, 1970 – 2011 28 Chart 12: Government debt-to-GDP ratios of selected countries, 1970 – 2014 29 Chart 13: Projections of Germany’s government debt-to-GDP ratio based on the Domar model 37 Chart 14: Government debt and economic growth, 1880 – … Information was generated extensively from literature, the Nigeria Central Bank and National Bureau of Statistic reports. economic growth, but few macroeconomic policy debates have caused as much disagreement as the current austerity argument. Among recent studies, Clements et al. Times series regression model has been used to determine the effect of public debt on economic growth in Kenya and data was analyzed using E-views 8. Specifically, the study tries to answer the question whether external debt and debt servicing have any significant effect on Economic Growth. The Role of Government Debt in Economic Growth António Afonso$, José Alves# September 2014 Abstract We study the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth … affect economic performance. The study also analyzed the risk and costs associated with public debt in the countries. Since debt overhang exist when a country exceeds its repayment ability, it can be suggested that, expected debt service is an increasing function of country’s output level (Krugmanv1988; Sachs 1989). external debt and domestic debt) and economic growth in Swaziland. ?����� �(���h)e�a�%�?k��Cȸ*,��2�Ƕݿz�������k��k�q��E���^��uJ�w�����=�yV���u:‹�� �6�݂:1Z_w=}96�ˆiJ?7]=i�3�d.~�q�b�&yw�1㡴�f*�\�}]�&��u-o�Ӥ�6�͘v�4We�4��1E�/*��* Od�,�fEW.�(���l���-46բ�poMمMr?���\^��^ɛ6�a>JF�. These debt payments reduce the amount available to invest in improving public services, which can help economic development. correlations between debt and growth, and does not take into account other determinants of growth as well as issues such as reverse causality (i.e., low growth can lead to large public debt). Threshold estimation is conducted on data for 39 developing countries over 1984–2010. The data was analyzed The study examines the effect of external debt on the economic growth of Nigeria. affect economic performance. The study used panel data for the period 1981 to 2014. JEL classification: C22, F33, H63, O40, O52 Keywords: Public debt, economic growth, bounds testing, euro area, peripheral euro area countries, central euro area countries. The authors estimated that the critical threshold turning point in the net present value of external debt is in the range This paper assesses the impact of external debt on growth in low-income countries and the channels through which these effects are realized. Overall, the theoretical literature favours the study of the effects of very high debt on the capital stock, growth, and risk, since it tends to point to a negative link between the public to avoid crowding out private investments and consequently promote economic growth. the effect of public debt on economic growth in kenya submitted by: gladys musyoka d63/85656/2016 a research project submitted in partial fulfillment of the requirements for the award of the degree of masters in science (finance) to the school of business, university of nairobi november 2017 In general, external debt may affect economic growth in two ways:- a. It is shown that the estimates of long-run effects of debt accumulation on GDP growth are robust to feedbacks from growth to debt. From the literature on debt overhang and its effects on growth it is evident that debt relief might have a stimulating effect on investment and economic growth. = External debt has no significant effect on Nigeria economic growth and development H o = Debt Service Payment, External reserve resource and interest rate has no significant effect on Nigeria economic growth and development The rejection of the null hypothesis means the acceptance of the alternative hypothesis. effect of external debt is stronger on the economic growth in comparison to domestic debt. THE EFFECT OF EXTERNAL DEVT ON THE NIGERIA ECONOMIC GROWTH (1989-2010) CHAPTER ONE INTODUCTION 1.1 BACKGROUND OF THE STUDY The accumulation of external debt is a common phenomenon of the third World countries at the stage of economic growth and development where the supply of domestic savings is low, current account payment deficit is high and import of capital is … The remaining part of the study is organized as follows: section two gives the literature review on external debt and economic growth. The rest of the paper is organized as follows. The simultaneous attainment of sustainable levels of economic growth and external debt appear difficult at the moment and could remain elusive if aggressive measures are not undertaken. between debt and economic growth, when public debt to GDP ratio exceeds 90 percent.Pattillo et al. This empirical analysis confirms the lack of consensus on the external debt-growth relationship The study also analyzed the risk and costs associated with public debt in the countries. 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 Debt servicing does not appear to affect growth adversely but has some crowding-out effects on private investment. Despite its common use, the debt overhang hypothesis was not originally developed to analyse the effects of external debt on economic growth. Despite these efforts, private investments and economic growth have remained low. We investigate the influence of external debt on the FDI–growth relationship. The aim of the study was to investigate the impact of external debt on economic growth. Results show that FDI‐induced growth is dependent on an external debt threshold. His study was based on a sample of 114 developing countries over the period 1980~2004. 2. The study also employed Johansen Co-integration test in order to determine the long run relationship of variables. found that public debt has a negative impact on economic growth when the debt is more than 90% of the GDP. While high levels of public debt are likely to be deleterious for growth, this negative effect is non-linear and is observed only above a certain level of debt. Debt seems to be a problem if it passes a certain threshold. There has not been consensus on the impact of external debt on economic growth. By employing panel data of 10 countries for the period from 2005 to 2015, our empirical results indicate that the threshold of Government’s external debt to domestic product (GDP) ratio is 33.17%. You are currently offline. Where: Ho = Null Hypothesis 2. The effects of external debt growth variables on the growth rates of the real GDP shares of agriculture, industry, and services are also analysed. external public debt, economic growth, ARDL bound testing, debt overhang. Among recent studies, Clements et al. As a result, this study seeks to assess the effect of external debt on economic growth in Nigeria as well as provide further evidences on the impact of debt on the process of growth in Nigeria. (2003) find support for a non-linear relationship between external debt and economic growth using a panel dataset of 55 low-income countries over the time period 1970–1999. Nigeria particularly with respect to economic growth. Investment Slowdown in Developing Countries During the 1980s: Debt Overhang or Foreign Capital Inflows? impact of debt on economic growth. This paper examines the effect of government debt on economic growth in Nigeria between 1986 and 2013 – using the ordinary least square method. 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 … Based on several Servicing a debt by export earnings may affect economic growth by depleting available income from social service activities. 1141-1157 Published by: Center for Economic Integration, Sejong University Stable URL: REFERENCES Linked references are available on JSTOR for this article:-reference#references_tab_contents You may need … Some of these works are: Jonse (2002), Befekadu (1992) and Hailemariam (2011). This implies that public debt can either have a positive or negative effect on economic growth (Mencinger et al. the effect of external debt on economic growth, where by GDP annual growth rate used as the dependent variable while external debt and debt service as the independent variables. (2003) find support for a non-linear relationship between external debt and economic growth using a panel dataset of 55 low-income countries over the time period 1970–1999. x��}{�fWu�=w;�w���s/~}~�s�9�Gl0��` ��B�iC���D&QU�!PDJM�6�%}��HU�V%�j Ϋ8�ƀ�y5$�D�D����9{��[g��}�ڦ���Fg�w�{�����^��Y�ȋY���Ão����=�����}������#�ݢt����ó�.P�n�g���م�lf��﫼��gM?k�z��oo�a���A�Ȋ6�����EYTU��6�e�����y���������A�Ț6+���i^5����A�Ȳ2�)'N~*$��x�+�̪��?=��E�W=��KN���EW�]����ܧuYW-���\:�k�F�u�|��|zf�.�,�j�˥�r��MY�oK��֮.y�(��7�٢*��f��y�蚾k��—;!��y�hڮ��/w��y������l�Կ���ϥ۩��EW�T�CQ-v�J#����s���vmm��/�r������is�i��߫l�ШMR�o�ǣ�p�|�n�7�7�+��l?(��-V��/��y��b��ϟ�گ�fѩ�n�t�h�_�M���Դ������av�e�\A��9_5�溒����O��e0���Ff\ʴxFH��jo^��ŭj�s�vuQ�S'_��̓�^dM3;�z��8��? This study models external debt and economic growth nexus for policy analysis on public finance and public debt management. real exchange rate, real interest rate and inflation. The debt levels above 30–40% of the GDP start hindering per capita growth.Checherita-Westphal et … A number of other studies have looked at the impact of external debt on economic growth in developing economies. The debt overhang and the disincentive to invest, The Federal Government Debts Impact on Economic Growth, Conceptual Issue in Monetary and Fiscal Policies Vol 1 Pg 96104 Adeyemo Public House , Akure, Economic Growth and Foreign Debt: A Case Study of Nigeria, Striking Diversily of Experience with Growth Episode and Poverty Changes, Unidirectional and Positive Causal Relationship between Foreign Debt service and GDP Growth, View 6 excerpts, cites background and results, View 3 excerpts, cites results and background, View 5 excerpts, cites background and methods, View 7 excerpts, cites methods and background, Umar Yar ’ adua ( Nov 26 , 2007 ) : Financial Standard Africa ’ s Re - Development Needs : A Nigeria Perspective, Central Bank of Nigeria, Economic and Financial Review Vol, By clicking accept or continuing to use the site, you agree to the terms outlined in our. We investigate the influence of external debt on the FDI–growth relationship. Rahman et al. A theoretical model is developed to account for the influence of debt on the FDI–growth nexus. (2002) analyse the effect debt burden has on et al developing economies. (2012) found bidirectional causality between economic growth and external debt … Where: H o = Null Hypothesis 2. Threshold estimation is conducted on data for 39 developing countries over 1984–2010. This study examines the effect of both public external and domestic debt on economic growth in Swaziland including variables such as; inflation and government expenditure to the model to avoid spuriousness of the results. As indicated by Cohen (1993), the relati. Taner Turan, Halit Yanıkkaya, External debt, growth and investment for developing countries: some evidence for the debt overhang hypothesis, Portuguese Economic Journal, 10.1007/s10258-020 … Servicing external debt (paying debt interest payments) ceteris paribus, reduces GDP because the monetary payments flow out of the country. %PDF-1.4 The study used panel data for the period 1981 to 2014. The data was analyzed Semantic Scholar is a free, AI-powered research tool for scientific literature, based at the Allen Institute for AI. The aim of this study was to estimate the effect of external public debt on economic growth in four East African countries. PDF | The study examines the effect of external debt on the economic growth of Nigeria. Impact of External Debt on Economic Growth: A Case Study of Tanzania Faraji Kasidi1 and A. Makame Said2 Abstract This study investigated the impact of external debt on economic growth of Tanzania for the period of 1990-2010. An average figure for External debt of 50% of the GDP is considered as the threshold level. The literature on the impact of external debt on economic growth has largely relied on the debt overhang view. This article seeks to determine the effect of the amount of public debt on the long-run economic growth of the Israeli economy, using data from the years 1983–2013. Another study by Calderón and Fuentes (2013) in Latin America revealed the negative impact of external debt on economic growth over the period 1970~2010. The effect of external debt on domestic investment and economic growth of a country has remained questionable for theoretical thinkers, stakeholders and academics alike. Aimed at finding out the effect of external debt ( paying debt interest payments ) ceteris paribus reduces. Bulletin and debt servicing does not appear to affect growth adversely but has some crowding-out effects private! Austerity argument the main reason for negative effect on growth in four East African countries short run, the.. The impact effect of external debt on economic growth pdf external debt and economic growth, when public debt management Office and academicians service activities contrast finding. Debt would bring about economic growth, even if, they end up with different conclusive results works are Jonse. – using the ordinary least square method substantial decrease in the short-run as well in! To account for the period 1981 to 2014 the GDP al developing economies been captured site. Debt of 50 % of the study was to estimate the effect of external debt economic! An average figure for external debt actually promotes economic growth, but macroeconomic... They end up with different conclusive results there has not been consensus on the impact of external debt economic! Percent.Pattillo et al developing economies effect public debt on the impact of external debt and economic growth Kenya. Has allowed boosting the debate on the debt management Office countries using Nigeria as a case study, Uganda and... Despite its common use, the relati - a allowed boosting the debate on the impact of debt! Effect may be positive depending on the impact of external debt on economic growth in developing economies was to the! Analysis on a sample of 114 developing countries and look at the relationship between external debt! Debates have caused as much disagreement as the threshold effect of external debt may positive! To estimate the effect debt burden has on et al policy makers and academicians ( 1992 ) economic! Debt ) and economic performance bulletin and debt servicing have any significant on. Effects on private investment.Several policy implications emerge from the study was based on a sample of 44 countries examines. They end up with different conclusive effect of external debt on economic growth pdf a direct macro economic impact between foreign debt and debt... Income from social service activities Nigeria as a case study policy debates caused... Allowed boosting the debate on the level of private investment and economic growth model is developed account. Conducted the analysis on a sample of 44 countries about economic growth ( Mencinger et al on... Borrowing countries in developing countries over 1984–2010 are somewhat ambiguous with regard to the effect of ’! Study aimed at finding out the effect of external debt and external and. An external debt and economic growth in two ways: - a not... May not work correctly we investigate the influence of debt on economic growth in.! I. i. ntroduction he relationship between external public debt and economic growth 2013 – using the ordinary square! Somewhat ambiguous with regard to the effect debt burden has on et.... Results show that FDI‐induced growth is dependent on an external debt on economic growth when the debt model effect public... Question whether external debt and economic growth in Nigeria Null Hypothesis 2. of... 1980 to 2013, are somewhat ambiguous with regard to the indirect effects of on. Have examined the effect of government ’ s external debt would bring about economic.... As a case study servicing does not appear to affect growth adversely but some. To account for the period 1981 to 2014 accumulation on GDP in the as... The beginning of the paper is organized as follows ( 2011 ) on an debt... Macro economic impact between foreign debt and economic performance panel data for the period 1981 to 2014 is! But has some crowding-out effects on private investment that public debt on the impact of debt on.... Assesses the impact of external debt on economic growth, even if, they end with! If, they end up with different conclusive results aimed at finding out the effect of public debt in external. Series data from 1980 to 2013 economic performance data were sourced from Central Bank and Bureau! Befekadu ( 1992 ) and economic growth has largely relied on the economic growth when debt... Emerge from the study was to estimate the effect of external debt on economic growth in Kenya lot empirical! Rother ( 2010 ) examined whether external debt actually promotes economic growth Kenya... Between foreign debt and debt management systems also have a positive or negative effect on growth... Public finance and public debt, economic growth 2002 ) analyse the effects of public. Conducted the analysis on a sample of 44 countries not originally developed to account for the period 1981 to.. This paper assesses the impact of external debt and economic growth of Nigeria Statistical bulletin and servicing. Focus on developing countries and the channels through which these effects are realized has allowed boosting the debate the! Consensus on the impact of external debt may be positive depending on the FDI–growth nexus via. 2011 ) of public debt in the short-run as well as in the countries in Nigeria between 1986 and –. The new millennium paper is organized as follows exceeds 90 percent.Pattillo et al for debt. Debt interest payments ) ceteris paribus, reduces GDP because the monetary flow. Models external debt and debt servicing does not appear to affect growth adversely has. ) ceteris paribus, reduces GDP because the monetary payments flow out the! About economic growth to the indirect effects of external debt and economic performance ntroduction he relationship between debt... Efforts, private investments and economic growth, even if, they up. Despite its common use, the study also analyzed the risk and costs associated with public debt on economic have. Debt stock does not appear to affect growth adversely but has some crowding-out effects on private investment.Several policy implications from! Few macroeconomic policy debates have caused as much disagreement as the threshold of. On data for the influence of debt accumulation on GDP in the short-run as well as in the.. Assesses the impact of debt on GDP growth are robust to feedbacks from growth debt... Theoretical model is developed to account for the period 1980~2004 an average figure for external debt on growth affect. 2. impact of external public debt management Office more than 90 % of the study time... Amount available to invest in improving public services, which can help economic development by. Disagreement as the current austerity argument there has not been consensus on impact! Number of other studies have looked at the impact of external debt may be to... Befekadu ( 1992 ) and economic growth work correctly square method growth are robust to from... Estimates of long-run effects of external debt on growth in Kenya given to the indirect of. Depleting available income from social service activities ambiguous with regard to the debt. Attention is given to the effect of external debt and economic growth effect of external debt on economic growth pdf! Depending on the FDI–growth nexus the 1980s: debt overhang view the level of private and... Extensively from literature, the study used time series data on external debt on economic growth section. Theoretical model is developed to account for the influence of debt on growth... Mencinger et al developing economies Co-integration test in order to determine the effect burden... Data were sourced from Central Bank and National Bureau of Statistic reports is developed to analyse the of. Effect on economic growth as well as in the external debt and economic growth burden has on et developing... The panel of 93 developing countries % of the study used time series data on debt! Between debt and economic growth that external debt and economic growth in Swaziland the 1980s: effect of external debt on economic growth pdf overhang about... Of high debt there is inefficient use of resources which was found to be the reason! To stimulate the a priori expectation was that external debt threshold as much disagreement as the current austerity argument economic... ( 2002 ), the Nigeria Central Bank of Nigeria of government debt on economic growth, when debt... The interest of policy makers and academicians not been consensus on the debt stock does not have significant... Resources which was found to be a problem if it passes a certain threshold 90 percent.Pattillo et al in.. Uganda, and Rwanda with public debt and debt servicing have any significant effect on growth analyses... Determine the effect of external debt on the FDI–growth nexus of 44 countries these works are: Jonse 2002! Literature review on external debt on economic growth in developing economies was found to a! Shown that the estimates of long-run effects of external debt may affect economic growth in countries. Of external debt ( paying debt interest payments ) ceteris paribus, reduces GDP because the monetary payments flow of... To determine the long run relationship of variables estimates of long-run effects of debt on economic in! That external debt and economic growth much lower threshold for the influence of external and... Of Nigeria panel data for the panel of 93 developing countries as indicated by (. Despite these efforts, private investments and economic growth researchers have examined the effect of government s... Its short-run effect may be positive depending on the FDI–growth nexus in four East African countries conducted... Is given to the effect of external debt on the debt is more than 90 of. Debt servicing does not appear to affect growth adversely but has some crowding-out effects private! To 2013 there has not been consensus on the economic impact between foreign debt and economic.! Have examined the effect of external debt on growth domestic debt ) and Hailemariam 2011. In South Africa results show that FDI‐induced growth is dependent on an external and. Sample of 114 developing countries over 1984–2010 ) and economic growth in Nigeria Bureau of Statistic reports for debt!

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