EXTERNAL DEBT AND ECONOMIC GROWTH: NEW EVIDENCE FOR AN OLD DEBATE

Abstract

This study aims to contribute to the understanding of the impact of external debt on economic growth by using the data for moderately indebted middle-income countries over the period of 1985-2013. The paper employs a relatively recent panel analysis technique, the common correlated effects (CCE) framework, which considers cross-sectional dependence and heterogeneity implications in the data. Our overall findings suggest a negative linear effect of external debt for the panel despite some exceptions in the country-specific results. In the panel results, the impact of external indebtedness occurs through the debt stock rather than a direct impact of liquidity constraint represented by a debt service variable.