{
  "title": "What Are the Channels Through Which External Debt Affects Growth?",
  "publication": "IMF Working Papers, January 1, 2004",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/what-are-the-channels-through-which-external-debt-affects-growth-17021",
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  "summary": "This paper investigates the channels through which debt affects growth, specifically whether debt affects growth through factor accumulation or total factor productivity growth. It also tests for the presence of nonlinearities in the effects of debt on the different sources of growth.",
  "sections": [
    {
      "heading": "Research question and scope",
      "content": "- Investigates whether debt affects growth through factor accumulation or total factor productivity growth.\n- Tests for the presence of nonlinearities in the effects of debt on different sources of growth.\n- Sample: a large panel dataset of 61 developing countries over the period 1969-98."
    },
    {
      "heading": "Methodology",
      "content": "- Growth-accounting framework distinguishing contributions from physical capital accumulation and total factor productivity (TFP) growth.\n- Empirical approach includes alternative estimators to control (to different extents) for biases associated with unobserved country-specific effects and the endogeneity of several regressors, particularly the debt variables.\n- Tests compatibility with a simultaneous significant effect of growth on debt ratios (as suggested by Easterly (2001))."
    },
    {
      "heading": "Key findings and quantitative results",
      "content": "- The negative impact of high debt on growth operates both through:\n  - A strong negative effect on physical capital accumulation.\n  - A strong negative effect on total factor productivity growth.\n- Average quantitative effects for high-debt countries:\n  - Doubling debt will reduce output growth by about 1 percentage point.\n  - Doubling debt will reduce both per capita physical capital growth and total factor productivity growth by somewhat less than 1 percentage point.\n- Contribution decomposition:\n  - Approximately one-third of the effect of debt on growth occurs via physical capital accumulation.\n  - Approximately two-thirds of the effect of debt on growth occurs via total factor productivity growth."
    },
    {
      "heading": "Robustness and sensitivity",
      "content": "- Results are generally robust to the use of alternative estimators addressing unobserved country-specific effects and endogeneity.\n- Findings are compatible with a simultaneous significant effect of growth on debt ratios."
    },
    {
      "heading": "Subject areas and keywords (as stated in the paper)",
      "content": "- Subjects: Capital accumulation, Human capital, Labor, National accounts, Production, Production growth, Productivity, Total factor productivity.\n- Keywords: Africa, Asia and Pacific, Capital accumulation, debt coefficient, debt impact, debt level, debt threshold, debt variable, debt-overhang effect, external debt, Global, Growth, growth accounting, Human capital, Laffer curve, Middle East, physical capital, Production growth, Productivity, stock ratio, Sub-Saharan Africa, threshold d, Total factor productivity, WP.\n\nHélène Poirson, Luca A Ricci, and Catherine A Pattillo, \"What Are the Channels Through Which External Debt Affects Growth?\", IMF Working Papers 2004, 015 (2004), January 1, 2004.\n\n---\n\n Content in this bundle\n\n- wp0415\n  - wp0415 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp0415 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/what-are-the-channels-through-which-external-debt-affects-growth-17021"
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    "Authors: Hélène Poirson, Luca A Ricci, Catherine A Pattillo",
    "Published: January 1, 2004",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451843293.001",
    "Investigates whether debt affects growth through factor accumulation or total factor productivity growth.",
    "Tests for the presence of nonlinearities in the effects of debt on different sources of growth.",
    "Sample: a large panel dataset of 61 developing countries over the period 1969-98.",
    "Growth-accounting framework distinguishing contributions from physical capital accumulation and total factor productivity (TFP) growth.",
    "Empirical approach includes alternative estimators to control (to different extents) for biases associated with unobserved country-specific effects and the endogeneity of several regressors, particularly the debt variables.",
    "Tests compatibility with a simultaneous significant effect of growth on debt ratios (as suggested by Easterly (2001)).",
    "The negative impact of high debt on growth operates both through:",
    "Average quantitative effects for high-debt countries:",
    "Contribution decomposition:",
    "Results are generally robust to the use of alternative estimators addressing unobserved country-specific effects and endogeneity.",
    "Findings are compatible with a simultaneous significant effect of growth on debt ratios.",
    "Subjects: Capital accumulation, Human capital, Labor, National accounts, Production, Production growth, Productivity, Total factor productivity.",
    "Keywords: Africa, Asia and Pacific, Capital accumulation, debt coefficient, debt impact, debt level, debt threshold, debt variable, debt-overhang effect, external debt, Global, Growth, growth accounting, Human capital, Laffer curve, Middle East, physical capital, Production growth, Productivity, stock ratio, Sub-Saharan Africa, threshold d, Total factor productivity, WP.",
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