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Over the years most of the developing countries have failed to collect enough revenues to finance their budgets. As a result, they have to face the problem of twin deficits and to rely on external and domestic debt to finance their developmental activities. The positive effects of public debt relate to the fact that in resource-starved economies debt financing (if done properly) leads to higher growth and adds to their capacity to service and repay external and internal debt. The negative effects work through two main channels – i.e., “Debt Overhang” and “Crowding Out” effects. The purpose of this paper is to examine the consequences of public debt for economic growth and investment for the Philippines.

The present study examines the consequences of public debt for economic growth and investment for the Philippines during the period 1975-2010, by using autoregressive distributed lag technique.

The results reveal that in the Philippines, public external debt has negative and significant relationship with economic growth and investment confirming the existence of “Debt Overhang effect”. But due to insignificant relationships of debt servicing with investment and economic growth, the existence of the crowding out hypothesis could not be confirmed. The domestic debt has a negative relationship with investment and positive relationship with economic growth.

First and foremost implication of the study is that heavy reliance on external debt must be discouraged. Therefore, in order to accelerate economic growth, developing countries must adopt those policies that are likely to result in reducing their debt burden, and it must not be allowed to reach unsustainable level. In the case of domestic debt, the present study finds that investment is negatively affected by domestic debt due to the crowding out effect; yet real GDP has a positive relationship with domestic debt. Thus, if policy makers want to use domestic debt as a tool to stimulate real GDP then it must keep an eye on the consequences of domestic debt on the investment.

First and foremost implication of the study is that heavy reliance on external debt must be discouraged. Therefore, in order to accelerate economic growth, the Philippines must adopt those policies that are likely to result in reducing their debt burden, and external debt it must not be allowed to reach unsustainable level. In the case of domestic debt, the present study finds that investment is negatively affected by domestic debt due to the crowding out effect; yet real GDP has a positive relationship with domestic debt. Thus, if policy makers want to use domestic debt as a tool to stimulate real GDP then it must keep an eye on the consequences of domestic debt for on the investment.

It also follows from the estimation results that population growth rate is harmful for the economic growth. So in order to stimulate the growth performance, it must adopt effective population control policies. Similarly, since openness and investment are growth enhancing so there is need for the trade and investment supportive policies.

From the review of literature on the issue, it can be broadly summarized that most of the studies are on the relationship of external debt and economic growth, neglecting domestic debt entirely or mentioning it in the passing. Second, most of these studies have been conducted by using panel data. However, as the different countries vary in socio-economic conditions so it is better to conduct the country specific study. The present study is an attempt to fill these gaps in the existing literature.

The purpose of this paper is to examine the redistributive effect of domestic public debt: lenders to the government lie on the higher end of the income distribution, but the burden of debt financing falls on the entire tax base, to the extent that taxes are used to service debt. Because domestic debt is typically held by domestic lenders, this involves a redistribution of resources.

The author uses cross-country panel data on debt composition, and run regressions of income inequality, as measured by the Gini coefficient, using various specifications, controlling for a variety of macroeconomic, fiscal and political variables.

The author finds that the composition of public debt is consistently a significant determinant of income inequality: the domestic share of public debt is regressive and significant across all specifications, even controlling for total and external debt servicing, political conflict, corruption and a variety of government spending variables.

The data span 18 years (1990-2007) which means that long-run effects are hard to track. While the author has a good mix in the sample of observations from low-, middle- and high-income countries, the author is constrained in the choice of countries by the availability of data on inequality and on the composition of public debt.

This is the first paper to examine the composition of public debt in terms of domestic and external debt, and any bearing it may have on income inequality. The finding is also new for both the public debt and income inequality literatures: cross-country panel data are consistent with the belief that domestic debt redistributes resources from the entire tax base to wealthy holders of government debt in a way that external debt does not.

To investigate relative differences in debt financing between international and domestic industrial firms operating in Turkey, Germany and the UK.

Analysis depends on multivariate regression analysis, while controlling the effects of firm‐specific characteristics, industry effects and controlling shareholders. The approach is to examine the effects of the features of the financial markets and institutions in the sample countries.

Turkish international firms use higher total debts than domestic firms. However, no strong evidence is found for the sample of German and UK firms to support this result. The major finding is that, apart from the effects of firm‐specific factors, industry and controlling shareholders, Turkish international firms increase their debt financing at a fixed rate.

The basic features of Turkish financial markets and institutions, especially bank ownership of equity in firms, are the major reason for the differences between the results in the sample countries.

This paper provides an international comparison for the dissimilarity in debt financing between international and domestic firms.

This paper aims to analyze the pattern of public debt in Brazil, Russian Federation, India, China and South Africa (BRICS) in a comparative perspective. Besides, an attempt is made to verify the existence of debt overhang as suggested by Krugman (1988) among BRICS nations.

Annual panel data for BRICS for the period 1980-2016 has been used for the analysis. Percentage ratio method has been used to analyze the pattern of debt. Panel covariate augmented Dickey–Fuller (pCADF) test has been used to verify the time series properties of the variable, while panel cointegration test of Pedroni (1999) is used to check the existence of any co-integrating vector among the variables. Panel Granger causality test is used to check the causality between the variables.

Co-integration result suggests that there exists a strong long-run equilibrium relationship between debt service, domestic savings, capital formation and economic growth of BRICS nations. From Granger causality test, it is observed that domestic savings and capital formation are Granger caused by debt servicing. The coefficients from fully modified ordinary least squares measure a negative impact of debt service on gross capital formation and gross domestic saving. This suggests that the payment for debt service affects capital formation and gross domestic savings adversely. Thus, it gives primary signals for debt overhang effect in BRICS nations.

Allowing debt service to negatively affect the investment and potential investment will result in slowdown or stagnation in economic growth in the long run, so strategies need to be taken in BRICS nations to check the adverse effects of rising level of debt-service-payment-to-gross national income ratio on domestic savings and capital formation. BRICS nations need to reduce their debt service payment by undertaking appropriate strategy of debt overhaul and fiscal management so that domestic savings and capital formation in the country will not be adversely affected. Besides, BRICS nations need to take measures to augment its domestic savings and capital formations.

To the best of the authors’ knowledge, no published works have analyzed the pattern of public debt for BRICS (major developing nations). Debt servicing is also not checked for BRICS in recent papers, considering overhang approach.

This study examines the effect of external debt and domestic capital formation on economic development in Sub-Saharan African (SSA) economies.

Using the Dynamic Common Correlation Effects (DCCE) technique and the Driscoll and Kraay fixed-effect technique, this paper conducts a multidimensional assessment of external debt and domestic investment on economic development across a panel of 35 SSA countries from 1995 to 2018. The data utilized are sourced from the World Development Indicators (2021) and the United Nations Development Program (UNDP) database (2021).

The results reveal that domestic investment has a positive impact on economic development in SSA countries, consistent across all three dimensions of the human development index (income, education and life expectancy). However, external debt exhibits an adverse effect on economic development, consistently yielding negative outcomes for life expectancy, education and income.

Based on these findings, the authors recommend that SSA economies implement appropriate policies, such as reducing bureaucratic requirements and addressing corruption, to enhance domestic capital investment. Additionally, efforts should be directed toward channeling contracted debt into productive sectors like road construction and electricity provision.

This study is among the first to assess the impact of domestic investment and external debt on the three dimensions of human development outlined by the UNDP. Furthermore, it employs a robust econometric method that considers cross-sectional dependence (CD).

The management of external debt among highly indebted poor countries (HIPCs) in Africa still remains a challenge despite numerous packages and attempts to ameliorate the consequences of such odious debt. The purpose of this paper is to establish the factors that contribute to the growth rate of external debt and how these factors respond to shocks to external debt growth rate in Africa.

Data were obtained from 24 African countries and analyzed using a panel vector autoregression estimation methodology.

The study found that external debt growth rates respond positively to unit shock or changes in government investment spending, consumption spending, and domestic borrowings over a long period of time. In the medium term, external debt growth rates respond negatively to shocks in tax revenue, inflation, and output growth rates. The paper also provides empirical support that external debt may be consumed rather than invested among HIPCs in Africa.

The findings of this paper are limited to only HIPCs in Africa.

This study has some few debilitating implications for external debt management among HIPCs in Africa. First, the paper suggests that debt repayment may be a problem. This is largely because external debt is consumed rather than invested. External debt sustainability needs a holistic approach in less developed countries. The findings place much emphasis on improvements in gross domestic product and tax revenues as the principal routes out of the debt doldrums. However, this option must be exploited with great caution as there is ample evidence that these poor countries increase their external borrowing capacities with improvements in economic outlook.

This paper fills a research gap that identifies specific components of government deficit budgets that may be contributing to the growth rate of external debts among HIPCs.

Emerging markets are said to have sustained relatively well in the recent global crisis. There are several factors that help explain this popular view, such as, for example, perceived separation from key international financial centres. Still a lot is to be digested in the crisis aftermath with immediate implications for financial markets and real economy. This chapter offers a unique insight into dynamics within transition economies via an extended blended fiscal–monetary policy rules model with possibility of foreign reserves targeting and foreign currency-denominated debt dynamics. Calibration is based on actual data and is done under various targets and financial risk conditions. Prudent monetary policy and fiscal policy initiatives within current context drive the choice of targets. That may help dampen negative impacts of the crisis and thwart potential currency run. This chapter advances three possible post-crisis scenarios, each with unique solution for reserves, exchange rate, sustainable debt and output levels. Categorizing between net exporters and net importers based on countries' external positions, group-specific results are derived. While both groups are susceptible to exchange-rate risk affected by a multitude of shocks due to their fragile financial system, net importers risk high inflation, but net exporters over-borrowing. This chapter contributes to the literature on global financial crisis, macroeconomic policy, and role of nominal targets and foreign reserves in emerging markets.

This chapter starts from the issue of debt in the context of a national economy by contrasting two opposed views: policy prescriptions based on the Washington Consensus prioritize low public debt and a limited role of the government in the development process whereas a more heterodox view considers debt as logical, necessary, and helpful in order to allow the government to pursue an ambitious growth and development strategy. However, things change when the economy is considered in its international context: foreign debt is different from domestic debt and while the same heterodox analysis still rejects the Washington Consensus' demand for trade and financial liberalization, its own ambitious development strategies for the domestic economy get constrained by trade deficits, the threat of capital flight, and exchange rate instability. The question arises how the government can still significantly contribute to economic development beyond the limits of a purely private sector–driven approach. This is why this chapter reviews proposals to relax or overcome the balance-of-payments constraint. Finally, it considers a reform of international payments, which can be implemented by a single country unilaterally, and which enables it to stabilize its current account, avoid foreign debt accumulation, and support domestic development strategies.

The purpose of this paper is to examine the role external debt and foreign direct investment play in influencing financial development in Africa.

Annual data on external debt, foreign direct investment and financial development were extracted from the World Bank World Development Indicators from 2002 to 2015. The data employed were analysed within causal research design and the dynamic panel using generalized method of moment estimation approach.

The findings revealed that external debt and foreign direct investment have a significant positive relationship with financial development in African economies. Governments of the sampled economies should enact policies that would help attract high level of foreign direct investment as it contributes positively to financial development. Finally, governments of the sampled African economies should ensure foreign direct investment and external funds borrowed are channelled to productive sectors.

The paper analysed the relationship between external debt, FDI inflows and financial sector development. The paper is the first in terms of such analysis within the framework of the dual-gap framework, which is the first time in these kinds of studies. Previous studies have concentrated on the effect of financial sector on FDI and not the other way around.

The main goal of the study is to explore the long run relationship between public debt and domestic investment in West Africa. Essentially, a study of this nature is to proffer major inroads into addressing low investment levels plaguing the region and securing critical fiscal policy measures.

The study examines the long-run relationship between public debt and domestic investment in 13 West African countries between 1986 and 2018 with the use of Panel Dynamic Least Squares (DOLS) and Panel Fully Modified Least Squares (FMOLS), and causality test based on Toda and Yamamoto.

Public debt (% of GDP) and external debt stocks have an insignificant effect on domestic investment in the long run, suggesting the negligible effect of public debt on the level of investments in the region. Further evidence shows that domestic investment Granger causes public debt indicators, implying that there is unidirectional causality. This suggests that any investment-generation policy could engender a rise in public borrowing, although such public loans might not be effective when there is pervasive mismanagement of public funds, as public debts need to be well managed for ensuring improved investment.

The study suggests that maintaining a strong and effective debt-investment nexus requires fiscal consolidation efforts across countries, as such could lead to enhanced institutional capacity and sustainable investment-generation policy.

Since panel regression techniques used by the previous studies (Fixed and Random effects) could be susceptible to possible statistical errors due to endogeneity issue and might not be well suited for explaining long-run effect or capturing the part of investment sustainability, their conclusions could be misleading and remain untenable in West Africa' s context. Hence, the study adopts techniques (DOLS and FMOLS) which could account for endogeneity issue and provide better elucidations for long-term effects.