Exploring the Channel of Transmission between External Debt and Economic Growth: Evidence from Lower Middle Income Countries
Journal: Pakistan Journal of Humanities and Social Sciences (Vol.11, No. 2)Publication Date: 2023-04-12
Authors : Muhammad Hammad Ul Haque Khurram Iftikhar Syed Zia Abbas Rizvi;
Page : 1604-1617
Keywords : TFP; GDP; External Debt; Lower-Middle Income Countries;
Abstract
The study intends to ascertain the pathway through which foreign debt affects GDP growth in lower-middle-income countries (LMICs). High external debt stock has been major source concern for many LMICs in the late 90's and post financial crises period. Cross-section panel data from 30 countries were studied for the period 1999–2019 using a two-step system (GMM) estimation technique. The sample LMICs were further broken into Asian and African nations and the period was divided into 2010–2019 to assess the impact of post-financial crisis events. The research revealed a strong relationship between external debt and GDP growth via total factor productivity when the entire sample of LMICs was considered. However, the estimations also indicated that TFP is not a channel of transmission in Asian nations in both eras, namely 1999–2010 and the post-financial crisis period of 2010–2019, because foreign debt reduces total factor productivity. Furthermore, considering the entire sample and the post-financial-crisis period in African countries, external debt has a negative but minor connection with TFP. GDP growth shows a large and positive association with TFP in both periods in African countries.
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Last modified: 2023-12-07 19:20:18