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Open Access
Article
Publication date: 2 November 2021

Mesbah Fathy Sharaf

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Abstract

Purpose

Within a multivariate framework, this study examines the asymmetric and threshold impact of external debt on economic growth in Egypt during the period 1980–2019.

Design/methodology/approach

The paper uses a nonlinear autoregressive distributed lag (NARDL) bounds testing approach to cointegration and a vector error-correction model to estimate the short- and long-run parameters of equilibrium dynamics. A multiple structural breaks model is estimated to test nonlinearity in the relationship between external debt and economic growth.

Findings

Results of the NARDL model show a robust statistically significant negative long-run impact on economic growth stemming from both positive and negative external-debt-induced shocks. In terms of magnitude, on the one hand, the impact of external-debt-induced negative shocks exceeds that of the positive. In the short and long run, on the other hand, the growth impact of external debt in Egypt is symmetric. There is also support for the nonlinearity hypothesis in which a negative impact on growth of external debt obtains once the threshold level of external debt-to-GDP ratio equals or exceeds 96.7%.

Practical implications

Identifying the threshold level after which external debt becomes harmful to economic growth would help inform policymakers in Egypt about maximum external debt levels that can be sustained without impairing economic growth.

Originality/value

The current study makes a substantial contribution to the extant literature on the debt-growth tradeoffs. It breaks ground by being the first tract that examines, using a NARDL model, asymmetry and nonlinearity of debt-growth tradeoffs in Egypt.

Details

Journal of Business and Socio-economic Development, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2635-1374

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Article
Publication date: 14 August 2017

David Mensah, Anthony Q.Q. Aboagye, Joshua Y. Abor and Anthony Kyereboah-Coleman

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…

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Research limitations/implications

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

Practical implications

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.

Originality/value

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.

Details

Journal of Economic Studies, vol. 44 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 2 July 2008

Esther O. Adegbite, Folorunso S. Ayadi and O. Felix Ayadi

This paper aims to investigate the impact of huge external debt with its servicing requirements on economic growth of the Nigerian economy so as to make meaningful…

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6415

Abstract

Purpose

This paper aims to investigate the impact of huge external debt with its servicing requirements on economic growth of the Nigerian economy so as to make meaningful inference on the impact of the debt relief which was granted to the country in 2006.

Design/methodology/approach

The neoclassical growth model which incorporates external sector, debt indicators and some macroeconomic variables was employed in this study. The paper investigates the linear and nonlinear effect of debt on growth and investment utilizing the ordinary least squares and the generalized least squares.

Findings

Among other things, the negative impact of debt (and its servicing requirements) on growth is confirmed in Nigeria. In addition, external debt contributes positively to growth up to a point after which its contributions become negative reflecting the presence of nonlinearity in effects.

Originality/value

Nigeria's external debt is analyzed in a new context utilizing a different but innovative model and econometric techniques. It is of tremendous value to researchers on related topic and an effective policy guide to policymakers in Nigeria and other countries with similar characteristics.

Details

International Journal of Emerging Markets, vol. 3 no. 3
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 22 February 2021

Sarah Elkhishin and Mahmoud Mohieldin

This paper aims to assess to what extent the COVID-19 shock is expected to create a debt crisis in emerging markets and developing economies (EMDEs) through two main…

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2021

Abstract

Purpose

This paper aims to assess to what extent the COVID-19 shock is expected to create a debt crisis in emerging markets and developing economies (EMDEs) through two main questions: what are the main determinants of EMDEs external vulnerability? How vulnerable are EMDEs to the current COVID-19 shock compared to the global financial crisis (GFC)?

Design/methodology/approach

In addition to a descriptive analysis of the determinants of EMDEs external vulnerability, this paper designs two sub-indices of overindebtedness and financial fragility that capture EMDEs’ distinct characteristics. The two sub-indices together illustrate the overall external vulnerability to the current shock.

Findings

EMDEs are more vulnerable compared to the GFC era. Current debt threats arise mainly from debt architecture and the domination of volatile debt forms – primarily foreign currency-denominated bonds. Excessive fear of debt-deflation spirals after the GFC prompted EMDEs to expand their growth trajectories through a pattern of cheap private lending, loose measures and unmonitored fiscal expansion.

Research limitations/implications

Conclusive post-crisis data are still unavailable.

Practical implications

EMDEs need to balance between temporary accommodative measures and a post-shock policy mix that prevent a deflation spiral without worsening indebtedness and financial fragility. Moreover, financial prudence in face of growing credit demand is crucial, particularly in light of the monetary expansion and injected liquidity.

Originality/value

The indices offer a framework for examining external vulnerability in EMDEs based on theoretical and historical revisions, IMF benchmarks and EMDEs specific debt characteristics. The indices components can be offered for empirical examination in separate future research once conclusive data become available.

Details

Review of Economics and Political Science, vol. 6 no. 1
Type: Research Article
ISSN: 2356-9980

Keywords

Open Access
Article
Publication date: 15 February 2021

Douglason Omotor

This paper aims to apply the debt sustainability framework using various ratios to review the current state of sovereign debt of Economic Community of West African States…

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1591

Abstract

Purpose

This paper aims to apply the debt sustainability framework using various ratios to review the current state of sovereign debt of Economic Community of West African States (ECOWAS) member countries.

Design/methodology/approach

Debt sustainability framework using various ratios (which include the present value approach, Country Policy and Institutional Assessment debt policy assessment ranking and solvency ratio of external debt) for the period 2010 and 2017 were used for the analysis to determine external debt sustainability and solvency of ECOWAS members.

Findings

The findings indicate that most ECOWAS countries are already turning at the unsustainable debt path and may renege in their debt obligations, thus creating a vicious cycle of external borrowing that could lead to capital flight.

Originality/value

This paper offers the empirical evidence to identify which of the ECOWAS countries are already at the threshold of external debt stress, and in the likelihood to renege on their debt obligations.

Details

Review of Economics and Political Science, vol. 6 no. 2
Type: Research Article
ISSN: 2356-9980

Keywords

Open Access
Article
Publication date: 28 July 2020

Sima Rani Dey and Mohammad Tareque

This study aims to examine the impact of external debt on economic growth in Bangladesh within a broader macroeconomic scenario.

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3181

Abstract

Purpose

This study aims to examine the impact of external debt on economic growth in Bangladesh within a broader macroeconomic scenario.

Design/methodology/approach

In the process of doing so, it assesses the empirical cointegration, long-run and short-run dynamics of the concerned variables for the period of 1980–2017 applying the autoregressive distributed lag (ARDL) bounds testing approach to cointegration. First, debt-gross domestic product linkage explores the impact of external debt impact on economic growth using a set of macro and country risk variables, and then this linkage is also analyzed along with a newly formed macroeconomic policy (MEP) variable using principal component analysis.

Findings

The study results reveal the negative impact of external debt on GDP growth, but the larger positive impact of MEP index indicates that this adverse effect of debt can be mitigated or even nullified by sound MEP and appropriate human resource policy.

Originality/value

The dynamic effects of different shocks (external debt and macro policy variable) on economic growth by vector autoregression impulse response function also confirm our ARDL findings.

Details

Journal of Economics, Finance and Administrative Science, vol. 25 no. 50
Type: Research Article
ISSN: 2077-1886

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Article
Publication date: 10 August 2020

Waliu Olawale Shittu, Nor Asmat Ismail, Abdul Rais Abdul Latiff and Hammed Oluwaseyi Musibau

Amongst the major concerns of sub-Sahara Africa are the rising external debt and poor performances in governance. This paper aims to lend a voice to the relevance of…

Abstract

Purpose

Amongst the major concerns of sub-Sahara Africa are the rising external debt and poor performances in governance. This paper aims to lend a voice to the relevance of governance on the relationship between external debt and economic growth in selected five sub-Saharan African (SSA) countries.

Design/methodology/approach

Using available data from the World Governance and Development Indicators, between 1996 and 2016, the study uses the fully-modified OLS technique after establishing the absence of unit root and existence of long-run relationship amongst the variables of the model.

Findings

The findings confirm a non-linear relationship between external debt and economic with a positive net effect of $5.05 increase in economic performance for a US$ rise in external debt. While the index of governance depicts a negative association with economic growth, the indicators show mixed results. The interaction effect of external debt and governance on economic performance explain that improved governance quality reduces its negative effect on economic performance by US$1.288 (with a total effect of –4.180 + 1.288*EXDBT); it equally enhances the (net) positive impact of external debt by US$1.288 (with a total effect 5.05 + 1.288*IQ).

Practical implications

The governments of the selected countries are, therefore, advised to seek other means of financing their expenditure while curbing financial mismanagement and its long-term impacts on growth. Also, governance infrastructures should be improved to restore both domestic and foreign investors’ confidence so that more private capitals may be attracted in lieu of excessive borrowings.

Originality/value

The research is the first to comprehensively examine the nexus between external debt, governance and economic growth in the selected countries, given their external debt position in SSA. This includes examining the impacts of each of the governance indicators and the comprehensive index of governance on growth. Furthermore, the study adds to the literature by examining the interaction effects of external debt and governance on economic growth of these countries. This gives both the partial and total estimates of the effects of external debt and governance on economic growth in the countries under consideration.

Details

Journal of Financial Crime, vol. 27 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

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Article
Publication date: 21 October 2013

Charles Amo-Yartey and Joshua Abor

– The paper aims to study the importance of financial market development and financial structure in explaining the financial policies of firms in emerging market countries.

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5202

Abstract

Purpose

The paper aims to study the importance of financial market development and financial structure in explaining the financial policies of firms in emerging market countries.

Design/methodology/approach

The paper uses a panel data of 32 countries and the system generalized method of moments approach.

Findings

The analysis shows that stock market development is associated with higher use of external finance relative to internal finance, while bond market development is associated with lower use of external finance relative to internal finance. The findings of this study also indicate that stock market development tends to shift the policies of firms towards less debt and more equity, and bond market development is associated with higher debt and less equity in emerging economies.

Originality/value

The value of this study is in respect of its contribution to the extant literature on corporate financial policies in emerging market economies.

Details

American Journal of Business, vol. 28 no. 2
Type: Research Article
ISSN: 1935-5181

Keywords

Open Access
Article
Publication date: 17 December 2019

Daniel Agyapong and Kojo Asare Bedjabeng

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

Downloads
2995

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Journal of Asian Business and Economic Studies, vol. 27 no. 1
Type: Research Article
ISSN: 2515-964X

Keywords

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Article
Publication date: 28 December 2021

Sisay Demissew Beyene and Balázs Kotosz

The purpose of this study is to provide an empirical analysis of the impact of external debt on total factor productivity (TFP) and growth along with the TFP channel…

Abstract

Purpose

The purpose of this study is to provide an empirical analysis of the impact of external debt on total factor productivity (TFP) and growth along with the TFP channel through which external debt affects the growth of heavily indebted poor countries (HIPCs).

Design/methodology/approach

This study uses panel data econometrics; basically, the seemingly unrelated regression (SUR) and alternative non-linear (panel threshold) models. For robustness check, it also uses panel-corrected standard errors, feasible generalized least squares and SUR (using alternative variables).

Findings

External debt significantly reduces both TFP and growth. Besides, it confirms that the relationship between external debt and TFP and gross domestic product growth is non-linear. Further external debt can affect the growth of HIPCs through the TFP channel. However, the threshold model result reveals weak evidence of threshold values although there are some threshold values of 67 and 54 for TFP and growth models, respectively.

Originality/value

To the best of the authors’ knowledge, this is the first study on most concerned countries (HIPCs) that shows a detailed and complete analysis of the TFP channel and the impact of external debt on growth. Thus, it provides appropriate and sound policies that consider the unique characteristics of the countries. Unlike most previous findings, this study does not support an inverted U-shape relationship between external debt and growth. Further, it provides insights into the relationships among TFP, external debt and growth. Moreover, it considers basic panel econometric tests like cross-sectional dependence, uses a non-linear simultaneous equations model along with the alternative non-linear model and is supported by different robustness checks.

Details

International Journal of Development Issues, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1446-8956

Keywords

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