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

Published in DISCUSSION PAPERS

T. Efthimiadis, P. Tsintzos. 2011.

 

In this paper we examine the e ects of the share of external public debt on a country's economic growth. These e ects 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 a ects 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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