The Impact of External Indebtednesson Poverty in Low-Income Countries

IMF Working Papers, March 1, 2003

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The paper explores the relationship between external debt and poverty.
A number of observers have argued that high external indebtedness is a major cause of poverty.
The paper models the impact of external debt on poverty, measured by life expectancy, infant mortality, and gross primary enrollment rates, while taking into account the impact of external debt on income.
The main conclusion: once the effect of income on poverty has been taken into account, external indebtedness indicators have a limited but important impact on poverty.

Estimation approach: first-differenced general method of moments (GMM) estimator.
Poverty measures used: life expectancy, infant mortality, gross primary enrollment rates.
Analytical scope: brings together literature linking external debt with income growth and poverty.

External debt affects poverty both directly and indirectly (via its effect on income).
After controlling for income effects, external indebtedness indicators retain a limited but important impact on poverty.
The paper integrates evidence from the literature on the linkages between external debt, income growth, and poverty outcomes.

Subject: Debt burden, Debt service, External debt, Health, Poverty
Keywords: crowding out, crowding-out effect, Debt burden, debt indicator, Debt service, External Debt, GDP, Growth, Laffer debt curve, Poverty, poverty indicator, poverty-growth nexus, real purchasing power, Sub-Saharan Africa, WP

The Impact of External Indebtedness on Poverty in Low-Income Countries - WP/03/61
- The Impact of External Indebtedness on Poverty in Low-Income Countries - WP/03/61 (Markdown version)
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