The Debt-Growth Nexus in Poor Countries : A Reassessment

This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered. The estimation of a growth model, with a panel of 121 developing countries, supports a negative and linear relationship between past values of the NPV of external public debt and current economic growth. This could be due to the "extended debt overhang", according to which a large indebtedness leads to misallocation of capital and discourage long-term investment and structural reforms