Can Debt Relief Buy Growth?

Hepp, Ralf

doi:10.2139/ssrn.819644

Cited by 11 publications

(8 citation statements)

References 55 publications

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“…Similar effects for the case of developing countries have been evidenced by Scott (1995) and Karagol (2002). Hepp (2008), concerned with identifying the existence of a positive impact on economic growth of the external debt reduction initiatives of the 90s in developing countries, found that such impact was virtually nonexistent, although more consistent results were found in those beneficiary countries with higher incomes.…”

Section: Literature Reviewmentioning

confidence: 99%

Public Debt and Economic Growth: A Two-Sided Story

Bilan¹,

Ihnatov²

2015

IJoES

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The recent European sovereign debt crisis proved public debt issues should not be easily approached. While, prior to the crisis, public debt was of little concern in most of the developed European countries, as there had been no recent episodes of sovereign default, the crisis revived longtime forgotten memories. It once again proved that, although at different debt levels, just like the developing countries the developed ones should fear high public debts and that public debt is almost always a two-sided story: although public indebtedness can promote economic growth, especially when debt resources are used for financing public investment expenditure, when the debt is very high it can negatively affect economic growth. Against this background, in this paper we aim to study the relationship between public debt and economic growth for a panel of 33 European countries (28 European Union Member States and 5 candidate countries to European accession) over the period 1990-2011. More specifically, we investigate if there is evidence of a non-linear (quadratic) relationship, both for the entire European countries group and for the developed and developing countries subgroups. The main sources of data are World Bank's World Development Indicators and International Monetary Fund's World Economic Outlook and Historical Public Debt datasets. The results of our study confirm the existence of a "U inverted" relationship, with a maximum debt threshold of about 94% of GDP. After this threshold public debt is expected to negatively affect the economic growth rate, due to higher interest rates, fear of public debt unsustainability and severe budgetary consolidation measures. However, this threshold is found to be more than twice lower in developing European countries compared to the developed ones, as the former enjoy lower credibility, higher vulnerability to shocks and depend more on external capital transfers.

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Section: Literature Reviewmentioning

confidence: 99%

Public Debt and Economic Growth: A Two-Sided Story

Bilan¹,

Ihnatov²

2015

IJoES

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“…Indeed, donor countries may incentivize a recipient country with a high level of sectoral growth by providing huge foreign aid. Conversely, some donor countries may also wish to channel large aid flows to slow-growing poor countries and may also direct that a proportion of the inflows be channelled to a specific sector where they believe intrinsically lag behind relative to other sectors (Hepp, 2008). Thus, there might be a negative association between sectoral output value additions and aid inflows.…”

Section: Empirical Strategymentioning

confidence: 99%

Aid, Aid Volatility and Sectoral Growth in Sub-Saharan Africa: Does Finance Matter?

Kumi

Ibrahim

Yeboah

2017

Journal of African Business

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This article examines the impact of aid and its volatility on sectoral growth by relying on panel dataset of 37 sub-Saharan African (SSA) countries for the period 1983-2014. Findings from the system-generalised methods of moments (GMM) show that, while foreign aid significantly drives sectoral growth, aid volatility deteriorates sectoral value additions impacting heavily on non-tradable sectors with no apparent effect on the agricultural sector.The deleterious effect of aid volatility on sectoral value additions in SSA is weakened by a well-developed financial system with significant impact on the tradable sector. Evidently, development of domestic financial markets enhances aid effectiveness.

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“…Since the global economic crisis of 2008-09, there has been resurgence in the literature on the debt-growth relationship in advanced and emerging economies. However, few empirical studies explicitly assess the growth effects of debt relief in low-income countries and, to our knowledge, none of them finds clear evidence that a reduction in the debt stock through debt relief raises growth or investment (Depetris and Kraay 2005, Hepp 2005, Johansson 2007and Presbitero 2008. Depetris and Kraay (2005) conclude that the lack of a positive impact of debt relief on growth is the result of the small value of debt relief compared with other forms of development aid or measures to increase domestic revenues.…”

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confidence: 99%

Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth

Marcelino

Hakobyan²

2014

IMF Working Papers

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In 1996, the IMF and the World Bank introduced the Heavily Indebted Poor Countries Initiative-a comprehensive debt relief program aimed at reducing the external debt burden of eligible countries to sustainable levels, provided they carry out strong programs of macroeconomic adjustment and structural reforms designed to promote growth and reduce poverty. Now that the HIPC Initiative is nearly completed, this paper investigates whether the initiative managed to spur growth, either directly or indirectly through investment. In contrast to earlier studies, we conclude that there is some evidence of positive effects of the HIPC Initiative on growth. Such evidence suggests that the HIPC Initiative and MDRI have helped HIPC-eligible countries to reach higher growth, but it remains unclear whether this is through higher investment or another channel. Also, the analysis illustrates that it is hard to disentangle pure debt-relief effects from other concurrent factors.

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Can Debt Relief Buy Growth?

Cited by 11 publications

References 55 publications

Public Debt and Economic Growth: A Two-Sided Story

Public Debt and Economic Growth: A Two-Sided Story

Aid, Aid Volatility and Sectoral Growth in Sub-Saharan Africa: Does Finance Matter?

Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth

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