Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2005:34: Debt and Economic Growth in Developing and Industrial Countries

Alfredo Schclarek
Additional contact information
Alfredo Schclarek: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper empirically explores the relationship between debt and growth for a number of developing and industrial economies. For developing countries, we find that lower total external debt levels are associated with higher growth rates, and that this negative relationship is driven by the incidence of public external debt, and not by private external debt. Regarding the channels through which debt accumulation affects growth, we find that this is mainly driven by the capital accumulation growth. There is only limited evidence on the relationship between external debt and total factor productivity growth. In addition, for private savings rates there are mixed results. We do not find any support for an inverted-U shape relationship between external debt and growth. For industrial countries, we do not find any significant relationship between gross government debt and economic growth.

Keywords: External Debt; Public debt; Economic Growth; Capital Accumulation; Productivity Growth; Private Savings

JEL-codes: F34; H63; O10; O40

39 pages, December 4, 2004

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