External Debt Service Research Articles

Impulse Response of External Debt Stock and Gross Capital Formation on Economic Growth in Bangladesh: Var Model, Granger Causality and Variance Decomposition Analysis

Purpose: This study employs an annual time series data set from 1987 to 2018 gathered from the World Development Indicators (WDI), 2021 to analyze the properties of external debt stock on financial progress(proxied by economic growth) in Bangladesh. Methodology: The objectives are determined using a variety of econometric techniques, including the Phillips-Perron (PP) unit root test, Var model, Johansen co integration test, Impulse Response Function (IRF), Variance decomposition function, and Granger causality test. The get the result of the Phillips-Perron (PP) unit root test which indicates the stationarity of all the variables at the initial difference. Findings: There is an expectant impact on financial progress (proxied by Gross Domestic Product Per capita) in Bangladesh, according to the short run Var model with the two independent variables External Debt Stock (proxied by public debt) and second lag of Gross Fixed Capital. Block Exogeneity/ Wald Tests and Johansen Co-integration test show that both lnEDS and lnGCF have a strong constructive impact on Bangladesh's financial progress in the short as well as long run. Pairwise, Granger Causality also indulgence the Bi-directional causality between lnGDPPC and lnEDS and Uni-directional causality from lnGCF to lnGDPPC. The influences of lnEDS and lnGCF on lnGDPPC are rising in the long term, showing that both variables are significantly exogenous on the dependent variable. Practical Implication: Bangladesh is now a fast-growing economy with several mega projects for infrastructural, human, and technological advancements such as roads, train, power, education, health, information technology, gas, and energy. External debt service and gross capital formation are crucial for Bangladeshi economic growth. The government should establish a priority aim for long-term economic growth by implementing suitable measures to control, maintain, regulate, and stabilize inflation at a reasonable level. Originality/Value: In a developing country, Savings within the country are insufficient to support investment for financial progress, according to the dual-gap theory and the Keynesian theory of public debt. As a result, bridging this gap for the required level of investment and achieving targeted economic growth will necessitate a bigger inflow of foreign aid or external borrowings. That’s why this study is very important. Limitations: Some limitations of this study include the absence of recent data with the factors. Also numerous factors can influence Bangladesh economic growth for instances, remittances, exchange rates and foreign direct investment all have a crucial impact on GDP growth.

External Debt, Transmission Channels, and Economic Growth: Evidence of Debt Overhang and Crowding-Out Effect

This study investigates the intricate relationship between external debt, debt service, and economic growth by using the panel data of 32 Asian Developing Economies (ADE) spanning 1995 to 2020. Employing a two-step system generalized method of moments (GMM) and a dynamic common correlated estimate (DCCE) model, the research explores key macroeconomic channels through which debt influences growth and rigorously tests for debt overhang and crowding-out effects. Findings reveal that public and private investment, total factor productivity, and national savings are pivotal channels transmitting the non-linear effect of external debt on economic growth. Notably, only private and public investment convey the non-linear effects of debt service to economic growth, while productivity and savings convey the linear effect. Evidence of debt overhang and crowding-out effects is identified in the sampled economies. The study suggests strategic measures for developing countries, emphasizing the productive use of accumulated debt, enhanced debt management, and timely project completion. Furthermore, it advocates for fostering economic growth through increased productivity, domestic savings, and private sector expansion to reduce dependence on foreign debt, facilitating both debt repayment and economic self-sufficiency.

External debt and economic growth in selected African economies: A heterogeneous dynamic panel data analysis

The nexus between external debt and economic growth of Ghana, Kenya, Morocco, Nigeria, Rwanda, Tunisia and Zimbabwe from 1981 to 2021 was examined in this study. For analysis, the Pooled Mean Group Heterogeneous Dynamic Panel Data Approach and the Toda Yamamoto Granger causality tests technique were deployed. The results indicated that external debt had a negative effect on economic growth. Moreover, debt service exerted a positive impact on economic growth. The findings of the causality tests showed that there is no causal link between external debt and economic growth. Furthermore, no causal link was established between debt service and economic growth. As a result, the study suggests that the capacity of these economies in terms of revenue generation and debt servicing should be reinforced by their governments through the channelling of external debt into long-term productive investments for the realization of positive economic growth. Moreover, the policies on debt servicing in these economies should be sustained since it is yielding the desired results. Furthermore, thoroughly assessed projects of high significance should be the only yardstick for the contraction of foreign loans in these economies. Also, the policy objectives of external debt, debt service and economic growth can be pursued separately from one another in this group of economies in Africa.

Two-Stage Least Squares and Three-Stage Least Squares in Modelling Nigerian Economic Growth

Every Country strives to attain economic stability. In a bid to achieve this, several economic indices are explored to make this a reality. This study focused on analysis of two stage and three stage least squares (2SLS and 3SLS) in modeling Nigerian economic growth. Considering the limitations of ordinary least squares (OLS) in dealing with simultaneous equations, we explored the use of two stage and three stage least squares which are more robust methods for this purpose. A secondary data was obtained from Central Bank of Nigeria bullion and the National Bureau of Statistics bulletin to investigate the relationship among economic growth, capital inflow and external debt servicing. Models for GDP, external debt servicing and capital inflow were obtained using R and Microsoft excel statistical packages. The study shows with coefficients of 3.9159 and -6.1878, that foreign debt- servicing has negative impact on GDP in the 2SLS and 3SLS models respectively: which is not significant in the 2SLS but significant in the 3SLS model. Also, GDP has negative, though significant effect on capital inflow with coefficient of -0.010495 and -0.0139109 in the 2SLS and 3SLS models respectively: a pointer to the effects of insecurity in Nigerian economic growth. The study recommends that Government should deplete existing external debt stock, increase utilization of capital stock and labour force, reduce borrowing rate, resort to alternative ways of enhancing both current and recurrent expenditures and deal with insecurity.

Presence of Debt Overhung Effect in Pakistan: Empirical Evidence with ARDL Model

Many developing nations, including Pakistan, have struggled with the challenge of maintaining debt sustainability due to insufficient revenue generation to meet economic crises. The primary aim of this study is to find how external debt, debt servicing, and exports influence the economic growth of Pakistan, utilizing data from 2000 to 2020. Augmented Dickey-Fuller test (ADF) is applied to evade spurious regression, revealing that debt servicing is stationary at level. In contrast, GDP, external debt, and exports are stationary at their first difference. For this reason, the ARDL model has been used to find the long-run and short-run interdependence among external debt, debt servicing, exports, and GDP. The empirical findings of this study revealed a negative and significant impact of external debt on Gross Domestic Product (GDP), supported by the “Debt Overhung Effect”. Conversely, debt servicing has a positive but statistically insignificant impact on GDP. Exports have a positive and significant impact on GDP growth. Moreover, to confirm the long-term stability of our model Cumulative Sum of Recursive Residual (CUSUM) and CUSUM of square have been used. This research contributes novel insights to the work conducted by other researchers, shedding light on the intricate relationship among external debt, debt servicing, exports, and GDP growth of Pakistan. Additionally, by estimating the effect of exports on GDP, valuable insights into the country's debt repayment capacity are provided. Export earnings constitute a primary source of foreign currency inflow.

Evolution of the Lao PDR’s External Debt since Its Reform and Opening Up

As the least developed country with an extreme lack of financial resources, borrowing is an inevitable way for Lao People’s Democratic Republic (Lao PDR or Laos) to develop its economy. However, in recent years, due to a deteriorating external environment, Laos’ economic activity has been weighed down and has faced considerable external debt servicing risks. This article analyses the development and evolution characteristics of Laos’ external debt since the reform and opening up.

Does public debt matter for human capital development? Evidence from Nigeria

An inquiry into the impact of external and domestic borrowings is considered timely for Nigeria, given the growing public debt profile amid deteriorating human capital development. Using data from 1990 to 2021, the study estimates the effects of domestic and external debts on Nigeria's human capital development. The study employed the fully modified ordinary least squares and canonical cointegration regression as the main estimation technique and the robustness check, respectively. The study discovered that domestic and external debt, economic growth and debt servicing exert positive and significant influence on human capital development in Nigeria while environmental pollution has an inverse and significant impact on human capital development in Nigeria. Premised on the outcomes, policy suggestions aimed at enhancing human capital development in Nigeria have been put forward.

From Debt Trap to Economic Prosperity: Solow Model Analysis of the Impact of External Debt on Indonesia's Growth

Indonesia, like many developing countries, has been grappling with the issue of external debt. This study uses the Solow Growth Model approach to examine the relationship between external debt and economic growth in Indonesia. The study utilizes time-series data from 1970 to 2022. It includes Gross Domestic Product (GDP) as the dependent variable, while Debt Service, External Debt, Exports, Imports, Gross Capital Formation, and Population Growth are the independent variables. The ARDL method is used to analyse the data to determine whether there is a statistically significant relationship between the independent and dependent variables. The findings of this study reveal that External Debt, Debt Service, Exports, Imports, and Gross Capital Formation have a significant positive relationship with GDP, indicating that increased external debt can contribute to economic growth in the country. This suggests that the government can use external borrowing to increase investments, exports, and imports and ultimately drive GDP growth. These results have important implications for policymakers looking for strategies to promote economic growth in Indonesia. By focusing on measures that stimulate foreign investment, increase exports and imports, and enhance gross capital formation, policymakers can help the country move from a debt trap to economic prosperity. Using the Solow Growth Model approach, this study also provides a framework for other developing countries to examine the relationship between external debt and economic growth.

Assessing economic effects of foreign aid and capital flows on real economic growth

The study sought to investigate the effect of foreign aid and capital flow on real economic growth for the SADC region. Eleven member states of the SADC region are selected for analysis based on data availability. In the study, foreign aid is represented by official development assistance (ODA), external debt (EXTD), and debt service cost (DSC) while the inflow of foreign direct investment represents capital flow (FDI). Annual percentage growth of per capita Gross Domestic Product (GDPpc) is used as a proxy of real economic growth. Trade balance (TRO) is included in the model regression as a control variable. The study employed panel econometric models. The results of panel ARDL indicate that ODA and FDI were found to have a negligible effect on real growth in the short run but contribute positively and significantly in the long run. This revelation supports the view that ODA and FDI are essential determinants of growth. On the other hand, EXTD together with its associated costs was found to have a detrimental effect both in the short run and long run. Based on the results of the study, the authors put forward the following policy recommendations for the SADC region: most importantly, there ought to be effective management of external debt by SADC countries to reduce their overdependency on external debt for their domestic needs. Given the positive effect of FDI in the region, the SADC region needs to intensify its efforts in devising measures that will attract foreign investors to the region which among others include pursuing inclusive and sustainable economic growth. Lastly, there is a need for effective management and official development aid to ensure sustainable growth.

Understanding the Growth Implications of Debt Servicing in Nigeria

This study examined the effect of external debt servicing on economic growth in Nigeria. The specific objectives are to determine the effects of multilateral debt service, total debt service and external debt stocks on gross domestic product (GDP) growth. Time series data required for the investigation were sourced from the World Development Indicators and International Debt Statistics. The data analysis techniques include descriptive statistics, unit root tests, Johansen cointegration test and parsimonious error correction model (ECM) in addition to the post- estimation tests. The unit root results showed that all the variables are stationary at first difference. In other words, this finding revealed that the variables are integrated into order one [I(1)]. Evidence of two cointegrating equations was established from the Johansen cointegration test results, which implies that GDP growth has a long-run relationship with multilateral debt service, total debt service and external debt stocks. The parsimonious ECM showed that multilateral debt service has a negative and significant effect on GDP growth. This implies that an increase in multilateral debt service is detrimental to economic growth. The results further showed that total debt service and external debt stocks negatively and significantly impacted GDP growth. This finding indicates that Nigeria has not productively utilized the growing stocks of foreign loans to enhance its contributions to economic growth. The error correction parameter (-0.432) is negative and significant, which suggests that short-run disequilibrium can adjust to a long-run equilibrium position at a speed of 43.2 per cent. Based on the findings, this study concludes that debt servicing undermines the growth of the Nigerian economy. Thus, it is recommended that among others the government should gradually reduce its debt stock to reduce the total debt service obligations and make more resources available for economic grow

Capital Flight and Unemployment in Nigeria

This study examined Capital Flight and unemployment rate in Nigeria. Capital Flight was proxied by foreign direct investment outflows, external debt servicing, external reserves and capital and financial account deficits. Hypotheses that guided the study were formulated in line with the study objectives and relevant literature were reviewed and evaluated. Relevant data were extracted from the annual Statistical Bulletin and other issues, of the Central Bank of Nigeria. Unit root test was conducted using Augmented Dickey Fuller method which revealed that the variables were integrated at level and first difference necessitating the use of autoregressive distributive lag/bond test to explore the long run relationship existing among the variables in the model and the result showed that the variables in the model were co- integrated thus we proceeded in evaluating the long run as well as the co-integrating form in the model. From the result of the various tests, it was revealed that while some of the outcomes conformed to apriori expectations, others did not. Based on the findings from the analysis, the study recommended amongst others, that external debt acquired should be judiciously used for infrastructural development that would encourage investments which would ultimately bring about economic development as well as reducing the rate of unemployment in Nigeria.

Public and publicly guaranteed external debt, debt servicing and investment in emerging economies

The global financial crisis of 2007 gave a major boost to the debt-investment nexus debate given the astronomical growth in external debt and its associated debt servicing burdens, which constrain the fiscal space of many developed and emerging economies. Hence, this study examined the effect of external debt and debt servicing on investment in MINT countries for the period, 1990-2021 using the FMOLS estimation technique. The results show that external debt adversely affects investment in Indonesia but stimulates investment in T?rkiye while debt servicing has a catastrophic effect on investment in Indonesia and T?rkiye but enhances investment in Nigeria. Overall, the effect of external debt and debt servicing on investment in MINT countries are mixed. Hence, the policymakers in each country need to put measures in place to foster debt sustainability, ensure effective domestic resource mobilisation for investment purposes and promote debt transparency by adopting effective debt management practices.

Effect of Selected Macroeconomic Variables on External Reserves Management in Nigeria (1981-2022)

This study examined the Effect of selected macroeconomic variables on External Reserves Management in Nigeria (1981-2022) with external reserves as a dependent variable and international crude oil price movement, exchange rate volatility, inflation, monetary policy rate, public expenditure, economic growth, external debt service payment, and trade Openness as independent variables. With dataset from the Central bank of Nigeria Statistical Bulletin and Autoregressive Distributive Lag (ARDL) model as the key estimation technique, the study found that crude price movement, economic growth, public expenditure growth, all had positive and significant impact on external reserves management. Exchange rate volatility, monetary policy rate and trade openness were found to have adverse and significant effects on external reserves. It is therefore recommended that effective and efficient fiscal and monetary policy measures be adopted to enhance the management of external reserves.

External Debt and Economic Growth: A Case Study of Pakistan (1972-2021)

Investment is crucial for maintaining the rate of economic growth in a nation. Many developing countries face economic problems due to low savings and investment. Pakistan, being a developing country, has been facing a budget deficit since its independence. Pakistan borrows loans from international institutions and other countries for smooth functions of its economy. Studies reveal that a significant portion of foreign reserves is utilized to pay external debt and interest on debt. Therefore, the main goal of this research is to examine how Pakistan's external debt affects economic growth from 1972 to 2021. Secondary data were collected from the World Bank. Unit root tests were applied to determine the stationarity of variables. Economic growth (GDP), external debt (ED) and debt services (DS) were stationary at first difference while imports trade (M), inflation (INF) and exports trade (X) were stationary at level. The Autoregressive Distributed Lag (ARDL) model is used to look at how dependent and independent variables are related over short and long time periods. The results show that foreign loans, exports and imports are positively related to economic growth, while an external debt service is inversely correlated. Inflation and economic growth are inversely connected. It is best for Pakistan to focus on exports, and external debt must be spent on developmental projects rather than non-developmental projects.

Public Debt and Exchange Rate Stability in Nigeria: An Empirical Analysis

This study examined public debt and its effect on exchange rate stability in Nigeria from 1980 to 2019. The data were subjected to statistical analysis using vector autoregression model. Using data on external and domestic debt servicing ratio to total debt stock, the findings showed no significant relationship between public debt and exchange rate stability in Nigeria within the period, likewise for ratio of external debt servicing to total external debt stock and exchange rate. Finally, domestic debt servicing had no significant relationship with exchange rate. The study concluded that as Nigeria increases external debt servicing, domestic prices increases and this also affects exchange negatively. It is recommended that concerted effort be intensified towards decreasing the level of external debt profile of Nigeria which will invariably decrease external debt servicing. Also, government should intensify revenue drive through exploring other viable sources that do not have repayment plan rather than relying on augmenting yearly budget through public debt accumulation. Keywords: Public Debt, Exchange Rate, Economic Stability, External Debt Servicing Ratio, Nigeria Economy.

Analysing External Debt Impact on Human Capital Development in Nigeria

Underdeveloped economies like Nigeria have always battled with human capital and economic development challenges orchestrated by poor and insufficient capital to embark on investment purposes. We know that economists have always supported that investment for production trigger economic activities leading to massive developments. This desire for economic developments have over the years triggered persistent scramble for foreign or international capital by underdeveloped economies and this has remained very contemporary. It therefore becomes imperative to analyse the impact that international capital has on human capital development of underdeveloped economies like Nigeria, with emphasis on External debt which is noted to be the commonest form and most favoured form of international capital for underdeveloped economies. Various studies that attempted to analyse the nexus came up with conflicting and or mixed findings. This study aims at disaggregating the impact of external debt on human capital development. The researcher has proxied ED with External debt stock (EDSK), External debt servicing (EDS), Exchange rate (EXR), Interest rate (ITR) and Inflation rate (IFR). The main objective of this study is to analyse the effect ED on human capital development (HCD) in Nigeria. The specific objectives are to explore, determine, assess, examine and ascertain the effect of EDSK, EDS, EXR, ITR and IFR on HCD. The study adopted ex-post facto research design and sourced data from the Central Bank of Nigeria Statistical Bulletin and Annual Reports and the World Bank Development Indicators were analyzed using Descriptive Statistics, Augmented Dicker Fuller tests for unit roots and Autoregressive Distributive Lag (ARDL) for the hypothesis. The study found no long run effect of ED on HCD in Nigeria but the existence of a positive and significant short run effect on HCD in Nigeria. It is recommended that External debt should be contracted solely for short term in

Macroeconomic determinants of Jordan’s external debt in the period 1980–2022 using ARDL

This paper addresses the macroeconomic determinants of Jordan’s external debt. The study aims at exploring the impact of foreign direct investment inflows on external debt service, gross domestic product (GDP), inflation, government spending, and real exchange rate, on the external debt of Jordan from 1980 to 2022. The study utilizes the autoregressive distributed lag (ARDL) bound cointegration econometric model to establish long-run relationships between variables. The model also investigates short-run dynamics via an error correction model to give insight into how quickly the system returns to equilibrium following a shock. Statistical results demonstrate an inverse link between foreign direct investment and debt, where a 1% increase in investment reduces debt by 0.15311%. Similar patterns are seen with GDP and external debt, where a 1% GDP rise reduces debt by 0.4743%. Government spending shows a direct relationship, with a 1% increase causing a 1.02049% debt rise. Real exchange rate and inflation impact debt, with a 1% rise causing debt to increase by 0.067 and decrease by 0.00771 dollars, respectively, though these effects are relatively small. In the short run, the system adjusts to shocks with an error correction coefficient indicating a 24% correction to equilibrium each period.

External Debt and Macroeconomic Indicators: Time Series Evidence from Nigeria

This study investigated the relationship between external debt and macroeconomic indicators in Nigeria. The objective was to investigate the effect of external debt on Nigerian macroeconomic indicators. The study used of time series data sourced from Central Bank of Nigerian statistical bulletin. Data were analysed using Statistical Package for Social Sciences. Macroeconomic indicators were proxy by real gross domestic product, inflation rate, unemployment rate and balance of payment while external debt was proxy by Nigerian external debt to London club of creditors, multilateral club of creditors, Paris club of creditors, promissory notes and external debt servicing. Ordinary least square method with the aid of statistical package for social sciences was used as data analysis method. The study found 71.3 percent while the R-square is 66.3 percent. External debt variables explained 68.6 percent variation on the dependent variable which is balance of payment. However, the beta coefficient of the variables found that all the independent variables have positive but insignificant effect on the dependent variable which is balance of payment, the study found that external debt explained 77.1 percent variation on Nigerian unemployment rate the beta coefficient of the variable shows that all the independent variables have positive relationship except Nigerian external debt with London club of creditors and found that 78.4 percent variation on Nigerian inflation rate while the coefficient shows that external debt with multilateral club, Paris club and Promissory note have negative relationship with Nigerian inflation rate while debt servicing and Nigerian external debt with London club of creditors have positive effect on Nigerian inflation rate. The study concludes that external debt has significant effect with Nigerian macroeconomic indicators. We recommend that external debt in Nigeria should be well utilized for better macroeconomic indicators.

Foreign aid, debt interest repayments and Dutch disease effects in a real exchange rate model for African countries

The international competitiveness of developing countries is integral to their economic development; hence understanding the main determinants of the real exchange rate is important. The empirical literature supports the Dutch disease hypothesis that foreign aid inflows significantly contribute to a real appreciation of African currencies, but these studies do not account for the downward pressure on the exchange rate from foreign currency payments. Using a panel of sub-Saharan African countries from 1980 to 2017, we test the hypothesis that the real exchange rate appreciation from aid inflows is moderated by interest repayments on external debt. Our findings suggest that one-third of the Dutch disease effect of aid inflows on the real exchange rate is offset by external debt interest repayments. These findings are important in showing that countries with external debt servicing obligations can mitigate the Dutch disease effect of aid inflows on competitiveness.

Attaining Economic Growth Through Financial Development and External Debts: Evidence from Emerging Economies

Current study examines whether in emerging countries, financial development (FD) and external debts (EXD) has an impact on the economic growth (EG) collectively by focusing on two main debt theories i.e., debt overhang theory by Krugman & Debt-Laffer curve. Annual data on external debts (EXD), financial development (FD), trade openness, inflation, capital formation, debt servicing, population growth and economic growth are derived from the “World Development Indicators” (WDI) from the year 1980 to the year 2019 for the emerging countries: Brazil, China, Indonesia, Mexico, South Africa, Turkey, Nigeria, Pakistan, Poland, Russia, Thailand. Autoregressive distributed lag (ARDL) model is used to estimate the long-run relationships among the variables in the model, and the effect of EXD on EG is determined using the pool mean group (PMG) model. This study shows the negative and significant relationship between external debt (EXD) and GDP growth and positive and significant relationship is found between financial development (FD) and EXD in the long-run. Similarly, in the long-run, Debt servicing, trade openness and inflation have a significant and negative relationship with GDP growth While population growth and gross capital formation has significant and positive correlation with GDP growth.