External Debt, Institutional Quality and Economic Growth

Daud, Siti Nurazira Mohd

doi:10.21098/bemp.v23i2.1173

Cited by 16 publications

(7 citation statements)

References 33 publications

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“…In contrast, if the IRS is below its average value by between one and three standard deviations, the tipping point increases up to 150% and 180% of the debt-to-GDP ratio, respectively. These findings are in line with previous studies which investigated the relationship between public debt and growth in large panel data sets and found evidence for a varying debt threshold across countries (Caner et al, 2010;Afonso and Jalles, 2013;Kourtellos et al, 2013;Eberhardt and Presbitero, 2015;Duygu, 2018;Koroglu, 2019;Swamy 2020;Mohd Daud, 2020). Our results suggest that the level of uncertainty may be one of the factors explaining the observed threshold variation across countries.…”

Section: Source: Authors' Own Calculationssupporting

confidence: 92%

Role of Uncertainty in Debt-Growth Nexus

Butkus¹,

Cibulskienė²,

Garšvienė³

et al. 2022

Prague Economic Papers

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This paper analyses uncertainty as one of the factors that affect the public debt-growth nexus. We put forward a hypothesis that uncertainty mediates the effect of public debt on economic growth. The empirical examination of the mediating effect is based on the neoclassical growth equation and consistent with specifications previously used to analyse the sources of heterogeneity in the debt-growth relationship. Since one part of the uncertainty is financial risk, which is closely related to the financial sector stability, we use interest rate spread as a main variable, and the risk premium on lending as an alternative one to proxy financial risk and thus, to some extent, uncertainty. Our results show that lower uncertainty is related to a bigger positive effect of debt on growth and a higher turning point in the debt-growth nexus. On the contrary, higher uncertainty leads to a lower positive and more considerable negative effect of debt on growth in both linear and quadratic specifications.

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Section: Source: Authors' Own Calculationssupporting

confidence: 92%

Role of Uncertainty in Debt-Growth Nexus

Butkus¹,

Cibulskienė²,

Garšvienė³

et al. 2022

Prague Economic Papers

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“…Megersa and Cassimon [46] highlight that countries with better quality of governance and institutional environment have a higher public debt sustainability threshold and empirical evidence supports this conclusion [4]. However, few studies [49][50][51] find opposite results, i.e., that the negative effect of debt on growth increases as institutional quality improves. Our estimates suggest that the size of the expenditure multiplier may be another potential source of a heterogenous debt-growth relationship.…”

Section: General Resultsmentioning

confidence: 99%

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

et al. 2021

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Currently countries are facing a new crisis caused by the COVID-19, which leads to the rise of government expenditures and additional borrowing. This situation highlights the importance of examine factors which determine the level of public debt that still sustains economic growth. A growing body of research supports the idea of a non-linear debt–growth relationship and estimates the threshold level above which debt becomes unsustainable and has a negative effect on output. The empirical evidence points out that there is no single sustainable debt threshold level that holds for all countries. This research complements scarce empirical evidence on the heterogeneous debt–growth relationship and provides some insights on the publicly available statistical indicators that might signal a relatively low/high expenditure multiplier and, at the same time, potentially unsustainable/sustainable growth stimulus through the use of borrowed funds. We test the hypothesis that the expenditure multiplier is shaping the impact of public debt on growth. Our empirical examination is based on panel data analysis in the groups of countries with expected relatively high and low expenditure multiplier. Research results show that a statistically significant negative marginal effect of debt on growth starts to manifest at a lower debt-to-GDP ratio when the expenditure multiplier is lower and vice-versa. The study shed some light on the sources of heterogeneity in a debt–growth relationship. We can conclude that countries with a high expenditure multiplier level can borrow more and sustain growth. In contrast, in countries with a lower expenditure multiplier, a relatively low debt level becomes unsustainable for growth.

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“…The empirical results that we found regarding the relationship between institutional quality and external/public debt still use each indicator as an independent variable (Nguyen et al 2017;Nguyen et al 2018;Nguyen and Luong 2021;Mehmood et al 2021). Meanwhile, we did not find anyone who uses it as an index directly for external debt, and the closest relationship is to economic growth (Mensah et al 2018;Mohd Daud 2020;Samad et al 2022). We found that external debt has an inverse relationship with economic growth (Mehmood et al 2021).…”

Section: Institutional Quality and External Debtmentioning

confidence: 69%

“…Some studies stated significance (Nguyen et al 2017; and others did not have significance (Nguyen et al 2018). Meanwhile, using the institutional quality index, the results still vary greatly for each macroeconomy account (Mohd Daud 2020;Samad et al 2022). The variety of empirical results shows the importance of this research as a contribution.…”

Section: Macroeconomics Institutional Quality and External Debtmentioning

confidence: 99%

External Debt Determinants: Do Macroeconomic and Institutional Ones Matter for Selected ASEAN Developing Countries?

Harsono,

Kusumawati,

Nirwana

2023

Economies

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Developing nations have the task of effectively managing their external debt. The government is urged to comprehend the decisive component in managing its external debt, despite the varying viewpoints among economists. In addition, the world sees the need for institutional quality to optimize its economic policy. Institutional quality shows accountability, stability, effectiveness, quality, law, and trust. Our research examines the determinant factors of external debt and discusses the policy to manage external debt. We regress the inflation rate, exchange rate, interest rate, trade openness, and institutional quality on external debt. This study also uses moderated regression analysis to examine the interaction between institutional quality and macroeconomic indicators on external debt. We selected 52 samples from five ASEAN developing countries from 2008 to 2019. The first study found that the inflation rate, interest rate, and institutional quality have a negative impact on external debt, while the exchange rate and trade openness have a positive impact on external debt. Next, we were surprised that institutional quality could not moderate the relationship between the inflation rate, exchange rate, and interest rate on external debt. Further, it only moderated the relationship between trade openness and external debt. In the end, we discuss the external debt determinants from the selected ASEAN developing countries with the theories.

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External Debt, Institutional Quality and Economic Growth

Cited by 16 publications

References 33 publications

Role of Uncertainty in Debt-Growth Nexus

Role of Uncertainty in Debt-Growth Nexus

The Heterogeneous Public Debt–Growth Relationship: The Role of the Expenditure Multiplier

External Debt Determinants: Do Macroeconomic and Institutional Ones Matter for Selected ASEAN Developing Countries?

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