External Debt and Growth

Abstract

This paper assesses the non linear impact of external debt on growth using panel data for 93developing countries. The estimates support a non-linear, hump-shaped relationship between debt and growth, especially when the debt burden is measured relative to GDP. For a country with average indebtedness, doubling the debt ratio reduces growth by a third to a half percentage point after controlling for endogeneity. Our findings also suggest that the average impact of debt becomes negative at about 160170 percent of exports or 3540 percent of GDP and the marginal impact of debt at about half of these values