Abstract
Over the years, most developing countries have failed to collect enough revenues to finance their budgets. As a result, they face the problem of twin deficits and are relying on public external and domestic debt to finance their developmental activities. NGOs and anti-globalisation movements have propagated the view that instead of reducing poverty public debt has increased the miseries of the poor. The current study examines the consequences of public debt for economic growth and poverty regarding selected South Asian countries, i.e., Bangladesh, India, Pakistan and Sri Lanka, for the period 1975–2010. It develops an empirical model that incorporates the role of public debt into growth equations and the model is extended to incorporate the effects of debt on poverty. The model is estimated by using standard panel data estimation methodologies. The results shows that although public debt has a negative impact on economic growth, neither public external debt nor external debt servicing has a significant relationship with income inequality, suggesting that public external debt is as good/bad for poor as it is for rich. However, domestic debt has a positive relationship with economic growth and a negative relationship with the GINI coefficient, indicating that domestic debt is pro-poor.
Highlights
At the beginning of twenty-first century, the developing world has faced two major interrelated problems: heavy indebtedness and the incidence of poverty
The results shows that public debt has a negative impact on economic growth, neither public external debt nor external debt servicing has a significant relationship with income inequality, suggesting that public external debt is as good/bad for poor as it is for rich
The main finding that emerged from the present study is that public external debt does not have a significant relationship with the GINI coefficient, indicating that public external debt remains neutral for the distributional effects
Summary
At the beginning of twenty-first century, the developing world has faced two major interrelated problems: heavy indebtedness and the incidence of poverty. Together, they have important implications for growth possibilities. The NGOs’ definition regarding debt sustainability is more concerned with human development needs, requiring the incorporation of the poverty issue in HIPC (heavily indebted poor countries) initiatives (Befekadu, 2001). According to traditional neoclassical models, in the initial stages of their economic development, these countries have limited capital stocks and investment opportunities; capital mobility increases the economic growth (Chowdhury, 2001). The review of the literature suggests that the effects of high indebtedness on poverty reduction seem not well explored empirically. The final section concludes by giving some policy implications and suggestions for future research on the subject
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
