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This paper empirically explores the relationship between external debt and growth for 20 Latin American and Caribbean countries. Using a dynamic system GMM panel estimator, we nd that higher (lower) total external debt levels are associated with lower (higher) growth rates, and that this negative relationship is driven by the incidence of public ex...
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... last two decades. Figure 4 presents the per capita GDP growth rate for each of the four decades between 1970 and 2002. In general, we can conclude that the 70’s was a decade of high growth and the 80’s one of low growth. For the other two decades the evidence is mixed and no general pattern can be observed. In the case of the total factor productivity growth rate (figure 5), no clear pattern can be distinguished for any of the four decades. Regarding the capital stock per capita in figure 5, it is noteworthy that for Brazil, Ecuador, Mexico and Uruguay its growth rates have been negative for all four decades. Only for Chile and Costa Rica have the growth rates been positive in all decades. In figure 7 the private savings rate as a percentage of gross private disposable income is presented. In general, the ratio has been around 17% and 25%, with the clear exception of Venezuela, where it has been above 25% in all four decades. The basic regression equation that we use in order to uncover the relationship between external debt and economic growth is of the ...
Context 2
... it is less clear than the last figure that the ratio has increased when comparing the 70's and the 90's, which is probably a consequence of increasing exports in the last two decades. Figure 4 presents the per capita GDP growth rate for each of the four decades between 1970 and 2002. In general, we can conclude that the 70's was a decade of high growth and the 80's one of low growth. ...
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Citations
... The study found that the accumulation of external debt had a negative impact on both economic growth and private investment. Schclarek and Ramon-Ballester (2005) studied the relationship between external debt and economic growth in ijef.ccsenet.org International Journal of Economics and Finance Vol. 15, No. 5; 13 20 Latin American countries from 1970-2002. ...
The study employed a Panel Vector Autoregressive (PVAR) model to examine the relationships among three macroeconomic variables- Gross Domestic Product, Total External Debt Stocks, and Gross National Expenditure - in International Development Association (IDA) member countries. Data from three different time frames - 1991-2019 (29 countries), 1994-2018 (35 countries), and 2008-2018 (39 countries) – was analyzed, and the lags of endogenous variables were used as instruments to address endogeneity issues in the dynamic model. The variables were transformed into growth rates to ensure stationarity and were estimated using the Generalized Method of Moments (GMM). The results were reported after removing both panel-specific and time-specific fixed effects. The study found a positive relationship between Total External Debt Stocks growth and Gross Domestic Product growth, which became more significant with the increase in the sample timeframe. The findings showed that a 100% increase in Total External Debt growth would lead to a 4-7% increase in Gross Domestic Product growth. The positive relationship was confirmed by the transmission of shocks from Total External Debt growth to Gross Domestic Product growth, but it lasted only for two periods and quickly returned to an equilibrium state. The relationship between Gross National Expenditure growth and the other variables was not conclusively established due to its lack of consistent and stable behavior with the other variables. The Stata package “pvar” was employed for data analysis and inferential conclusions.
... Though, the variable is positive in the period of expansion in MSM2 and MSM3, the coefficient is not significant. This result is contrary to Pattilo, et al., (2002Pattilo, et al., ( , 2004; Presbitero (2010); and Schclarek & Ramon-Ballester (2005) findings of positive relationship between human capital and economic growth. However, the negative relationship between human capital and economic growth is consistent with the result by Makuyana & Odhiambo (2019). ...
... Though, the variable is positive in the period of expansion in MSM2 and MSM3, the coefficient is not significant. This result is contrary to Pattilo, et al., (2002Pattilo, et al., ( , 2004; Presbitero (2010); and Schclarek & Ramon-Ballester (2005) findings of positive relationship between human capital and economic growth. However, the negative relationship between human capital and economic growth is consistent with the result by Makuyana & Odhiambo (2019). ...
The contention in the literature is the relative contribution of private and public investment on economic growth and whether the relationship is linear or non-linear. In addition, there is the issue of whether the impact of investment on economic growth changes depending on public and private investment Purpose. The study examines the relationship between investment (public and private) and economic growth in Nigeria over the period 1970-2016. Design/Methodology/Approach. The study employs Markov regime-switching approach developed by Hamilton (1989, 1990). Specifically, a multivariate dynamic Markov-switching model is estimated using maximum likelihood estimation techniques. The study employs annual time-series sourced from Central Bank of Nigeria, Statistical Bulletin and World Bank, World Development Indicator. Findings/Implications. The results show that the relationship between investment and economic growth is non-linear. Also, both public and private investments have a significant positive impact on economic growth. However, private investment contributes more to economic growth than public investment during the period of expansion. The reverse is the case during the period of contraction. The results support the basic neoclassical framework, with emphasis on savings and investment for analyzing long-term growth performance. Also, it is crucial to make a distinction between the impact of investment (public and private) on growth in two stages of growth. Originality. Government needs to be innovative by spending more during period of slump as more public investment will be required to pump prime the economy for increased private investment.
... The hypothesis that debt at moderate levels enhances growth, while in contrast, high debt stock depresses growth. In this strand of the empirical literature, studies by Asafo et al. (2019); Blavy (2006); Schclarek (2004); Schclarek and Ramon-Ballester (2005); Senadza et al. (2018) and Soydan and Bedir (2015) do not find evidence of a non-linear relationship between external debt and economic growth. In contrast, other studies, such as those by Adam and Bevan (2005); Cordella et al. (2005); Deshpande (1997); Pattillo et al. (2002), as well as Qureshi and Liaqat (2020), claim that the nexus follows a non-linear pattern. ...
... These results indicate that external debt does not affect savings; hence, savings are not channels through which external debt transmits its impact on economic growth. This result is in line with some previous findings (Riffat and Munir 2015;Schclarek 2004;Schclarek and Ramon-Ballester 2005;Silva 2020) but opposes those of Qureshi and Liaqat (2020) and Checherita-Westphal and Rother (2012). They identified savings as a channel of transmission from external debt to economic growth. ...
This study aimed to determine the channels through which external debt transmits its impact on economic growth in sub-Saharan African (SSA) countries. To this end, panel data comprising 30 SSA countries were investigated for the period 1985–2019, using the system generalized method of moments (GMM) estimation technique. The study identified public investment, private investment and total factor productivity as channels transmitting the non-linear effect from external debt to economic growth. Furthermore, the interest rate was also confirmed as a channel but with a direct effect. Contrariwise, the estimates indicated that savings are not a channel of transmission from external debt to economic growth in SSA. These findings call for urgent action from SSA countries to reduce their external debt stocks and implement alternative macroeconomic non-debt strategies to improve the identified channels to counteract the negative effect of high external debt on them.
... Furthermore, Pattillo, Poirson, and Ricci, (2002) as well as Clements, Bhattacharya, and Nguyen (2003), employed a large country sample and found that a high level of external debt accumulation has a negative impact on overall economic growth. By investigating the role of external debt on economic growth, Schclarek (2004) as well as Schclarek and Ramon-Ballester (2005), found a negative effect of public external debt on economic growth rather than private external debt. Reinhart and Rogoff (2010), after examining a cross section sample of 44 countries covering about two hundred years, confirmed a strong negative link between debt and economic growth, particularly when debt rises above 60% of GDP. ...
... Schclarek (2004), 59 adet gelişmekte olan ve 24 adet sanayileşmiş ülkeyi baz alarak yapmış olduğu analizde, gelişmekte olan ülkelerin almış oldukları dış borçların ekonomik büyümeleri üzerinde olumsuz etki meydana getirdiğini, ancak özel borçlanma ile kamu borçlanması arasında anlamlı bir ilişkinin bulunmadığını tespit etmiştir. Schclarek ve Ballester (2005), 20 Latin Amerika ve Karayip ülkesini (Arjantin, Brezilya, Şili, Meksika, Panama, Peru, Uruguay, Venezuella vb.) kapsayan çalışmalarında 1970-2002 dönemini 5'er yıllık periyotlar halinde (1970-1974, 1975-1980 vb.) ...
Dis borclanma yatirim- tasarruf aciginin bir sonucu olarak ortaya cikarken bu acigin kamuya ait olan kismi butce acigini ozel sektore ait olan kismi ise ozel sektorun finansman ihtiyacini belirlemektedir. Ozel sektorun ihtiyac duydugu finansmanin sabit sermaye olusumuna katkisi acisindan ise dis borclanmanin ekonomik buyume ve kalkinmaya dogrudan bir etkisi soz konusu olmaktadir. Turkiye ekonomisi icin borclanmaya klasik anlamda butce acigini kapatmaktan ziyade yatirimlarin finansmani amaciyla basvurulmasi ekonomi politikalarinin sekillenmesinde belirleyici olacaktir. Bu amacla calismada, Turkiye ekonomisi icin 1998-2014 donemi analiz edilerek dis borclanmanin yatirim harcamalarinin finanse etmek uzere bir yontem olarak secilip secilmedigi Cok Degiskenli Es Butunlesme cozumlemesiyle arastirilmaktadir. Anahtar kelimeler: Yatirim, Dis Borclanama, Cok Degiskenli Es Butunlesme
... Apart from the abovementioned two types of researches, there are also researches in the literature, indicating that the correlation between debt and economic growth is linear and non-linear. While Schclarek (2004), Blavy (2006) and Schclarek and Ramon-Ballester (2005) claim that they have a linear relationship, some other studies such as Adam and Bevan (2005), Cordella et al. (2005), Pattillo et al. (2002), Smyth and Hsing (1995), and Cohen (1997) argue that they follow a non-linear pattern. ...
... Therefore, these results obtained in the analyses are in line with expectations like the results of the studies in the literature on the relationship between investment and human capital with the economic growth. Pattillo et al. (2002Pattillo et al. ( , 2004, Presbitero (2010), and Schclarek and Ramon-Ballester (2005) conclude in their studies that there is a positive relationship between growth and human capital. Considering that one of the channels that will provide increasing returns and will contribute to long-term economic growth is the human capital in domestic growth literature, it is seen that the results in the model support the theory. ...
... Considering that one of the channels that will provide increasing returns and will contribute to long-term economic growth is the human capital in domestic growth literature, it is seen that the results in the model support the theory. In contrast to studies of Pattillo et al. (2002) and Schclarek and Ramon-Ballester (2005), the effect of population growth (POP) has been found significant positive. These results are compatible with the article of Cohen (1993). ...
Today, the major reason for external debt is to finance high public deficits. This study aims to examine the relationship between external indebtedness and growth variables. In this context, Markov-switching model is used because it allows the examination of unobservable variables in an observable model and provides steady algorithm to achieve robust optimization by iterations in a dynamic system, and is more flexible than prior models. This paper concentrates on the analysis of Turkey and utilizes the data set for the period of 1974 to 2009. Throughout the analyses, the relationship between growth and external borrowing is examined in terms of public and private external borrowing. Paper yields that, according to results of multivariate dynamic Markov-switching model, the main growth variables such as investment and human capital have positive impact on growth as expected. Findings can be summarized as follows; firstly, public and/or private external borrowing has negative impact on growth both in regime at zero and regime at one. Secondly, the negative impact of public borrowing on economic growth and development is higher than that of private borrowing on economic growth and development. Eventually, the conclusion reveals that the economic development and borrowing variables do not follow a linear path.
... In other words, it seems to have crowded out private investment. In their study, " External debt and economic growth in Latin America," Alfredo Schclarek ( May 16, 2005), has explained the relationship between external debt and growth for a number of Latin America and Caribbean economies. Researcher find that lower total external debt levels are associated with higher growth rates, and that this negative relationship is driven by the incidence of public external debt levels, and not by private external debt levels. ...
This study investigates the factors that determine and enhance economic growth. The factors to determine the economic growth of Srilanka is total debt, Longterm
Debt, Public Debt, Private Debt, Short-term Debt, and Gross domestic Products. Simple Linear Regression model, Semi Log Linear Regression models,
Correlation and Regression are applied to analyze the determinates of economic growth with the help of time series data for 29 years with annual frequency from
1981 to 2009. The economic growth may gain boost by the factors not only by these but also many others. In this study total debt, Long-term Debt, Public Debt,
Private Debt, Short-term Debt relationship with economic growth are found positively associated with economic growth.
... The author also suggested that with the accumulation of debt, the focus of economic policy and institutions shifts from the development of the real sector to debt management. In another recent study by Schclarek and Ramon-Ballester (2005), there is both a linear and nonlinear estimation of the relationship between external debt and economic growth in Latin America and the Caribbean, using a dynamic system GMM panel estimator. They also find an inverse relationship, but no evidence of nonlinearity. ...
This paper addresses the issue of threshold effects between public debt and economic growth in the Caribbean. The main finding is that there exists a threshold debt to gross domestic product (GDP) ratio of 55–56 percent. Moreover, the debt dynamics begin changing well before this threshold is reached. Specifically, at debt levels lower than 30 percent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 percent, the effects on economic growth diminishes rapidly and at debt levels reaching 55-56 percent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, debt becomes a drag on growth.
... Other empirical studies that find a non-linear effect of external debt on growth are those of Smyth and Hsing (1995) and Cohen (1997). On the other hand, in his study Schclarek (2004) found that there was a linear negative impact of external debt on per-capita growth in a panel of 59 developing countries for the period 1970-2002. According to (Feldstein, 1982); (Hoelscher, 1986); (Abell, 1990); (Miller and Russek, 1996); (Raynold, 1994); (Tanzi and Fanizza, 1995); (Cebula, 1993 and(Svensson, 1997); (Mitra, 1997); and (Vamvoukas, 1997) government debt increases interest rates, and as a consequence is an obstacle to the entrepreneurial activities (Georgiou, 2009b). ...
... According to (Feldstein, 1982); (Hoelscher, 1986); (Abell, 1990); (Miller and Russek, 1996); (Raynold, 1994); (Tanzi and Fanizza, 1995); (Cebula, 1993 and(Svensson, 1997); (Mitra, 1997); and (Vamvoukas, 1997) government debt increases interest rates, and as a consequence is an obstacle to the entrepreneurial activities (Georgiou, 2009b). Schclarek (2004) in his study investigated the relationship between gross government debt and per capita GDP growth in developed countries, but he didn't find any robust evidence of significant relationship. In a recent paper Reinhart and Rogoff (2010), analyze the developments of public debt and the long-term real GDP growth rate in 20 developed countries for a period that cover about two centuries (1790-2009). ...
... The first aim of the paper was to contribute to the empirical literature on the effects of government debt to economic growth. Our findings are in line with the results of Schclarek's (2004) survey where he didn't find any robust evidence of significant relationship between gross government debt and per capita GDP growth in developed countries. Also our results agree with the results of Reinhart and Rogoff (2010), where they found that the relationship between government debt and long-term growth is weak for debt/GDP ratio. ...
This paper investigates the nexus between economic growth and defense spending
for three adjacent countries, namely Greece, Turkey and Cyprus. Greece and
Cyprus, members-countries of European Union spend much more money than other
member countries of EU relatively to their GDP. Turkey is in accession
negotiations with EU and is among the top 15 countries with the highest military
expenditure. These three countries are particularly interesting case studies because of
their high military burdens and the bad relations between them (Greece and Cyprus
opposite Turkey). The empirical analysis is based on panel data analysis of data
over the period 1960 – 2006.
