Attaining Economic Growth Through Financial Development and External Debts: Evidence from Emerging Economies

Abstract

Current study examines whether in emerging countries, financial development (FD) and external debts (EXD) has an impact on the economic growth (EG) collectively by focusing on two main debt theories i.e., debt overhang theory by Krugman & Debt-Laffer curve. Annual data on external debts (EXD), financial development (FD), trade openness, inflation, capital formation, debt servicing, population growth and economic growth are derived from the “World Development Indicators” (WDI) from the year 1980 to the year 2019 for the emerging countries: Brazil, China, Indonesia, Mexico, South Africa, Turkey, Nigeria, Pakistan, Poland, Russia, Thailand. Autoregressive distributed lag (ARDL) model is used to estimate the long-run relationships among the variables in the model, and the effect of EXD on EG is determined using the pool mean group (PMG) model. This study shows the negative and significant relationship between external debt (EXD) and GDP growth and positive and significant relationship is found between financial development (FD) and EXD in the long-run. Similarly, in the long-run, Debt servicing, trade openness and inflation have a significant and negative relationship with GDP growth While population growth and gross capital formation has significant and positive correlation with GDP growth.

The complexity of financial development and economic growth nexus in Syria: A nonlinear modelling approach with artificial neural networks and NARDL model

“…While no specific nonlinear Syria study exists yet, insights from this cross-country evidence suggest the need for a nuanced approach in evaluating the asymmetric effects of positive/negative FD shocks on Syrian EG, though the relationship may depend on factors like trade openness, inflation, capital formation, and debt servicing [ 79 ].…”

The Interaction Between Financial Development and Economic Growth: A Novel Application of Transfer Entropy and Nonlinear Approach in Algeria

“…Based on these findings, it can be inferred that positive and negative shocks on FD may have a similar impact on EG in Algeria, both in the short and long term. However, it is important to note that the relationship between FD and EG can be influenced by various factors, such as trade openness, inflation, capital formation, and debt servicing (Shah et al, 2023). Therefore, the impact of FD on EG in Algeria may also depend on these factors and the specific context of the country.…”