Department of Economics and Business Economics

Development and foreign debt: The stylized facts 1970-2006

Research output: Working paperResearch

  • School of Economics and Management
The paper uses the data from the incomplete debt cycle for the LDC world from
1970 onwards to tell the typical story of debt. Two debt stories are contrasted: A good debt
story: Here countries borrow and invest wisely, so that they grow more. A bad debt story:
Here countries borrow when they are in crisis, and the debt grows and generates low growth
in the next couple of decades. The analysis concentrates on two relations: (R1) the relation
between borrowing and growth, and (R2) the relation between initial debt and growth. Both
relations are negative, so essentially the stylized story of debt is a story of bad debt. The paper
looks in vain for non-linearities in the two relations, suggesting that the good debt story
applies in some part of the range. The result thus confirms that international transfers to
governments are an inefficient way to promote development.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages30
Publication statusPublished - 2008

    Research areas

  • International borrowing and debt, economic development

See relations at Aarhus University Citationformats

ID: 12321816