No. 115. THE SHARE OF EXTERNAL DEBT AND ECONOMIC GROWTH

T. Efthimiadis, P. Tsintzos. 2011.

 

In this paper we examine the eects of the share of external public debt on a country’s economic growth. These eects are examined through a competitive, decentralised model of endogenous economic growth, which relies on public investments. Our ndings show that as the internal-external public debt ratio increases, the public to private capital ratio increases which in turn positively aects the long run economic growth rate. The main conclusion of this paper is that the out ow of domestic capital which is needed to service external debt has unfavourable repercussions on an economy’s long run steady state growth rate.

 

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