Structural adjustment
The debt-growth nexus in poor countries: a reassessment
Investigates the relationship between external indebtedness and economic growth
Authors:
A.F. Presbitero
Publisher:
Università Cattolica, Italy, 2005
This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered.
The author focuses exclusively on the economic consequences of high debts in poor countries, providing a re-examination of the channels through which external debt impinges on investment and on economic growth, in order to improve the reliability of policy recommendations.
Using past values of the debt ratio the document confirms the presence of a negative and linear relation between external debt and growth.
The role of macroeconomic policies is found to be essential for economic growth, supporting the adoption of selectivity and conditionality in debt relief programmes. The author recommends that international institutions and local government should encourage structural reforms and market oriented policies, in order to reap the benefits from external assistance and debt reduction. [adapted from author]
