Article1993

Low investment and large LDC debt in the 1980s

264 citations0/0 files storedAmerican Economic Review

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Global Financial Crisis and Policies Economic Theory and Policy Fiscal Policies and Political Economy

Abstract

This paper aims at disentangling the correlation between LDC debt and investment in the 1980s. The author shows that a large debt was not an unconditional predictor of low investment in the 1980s, nor was investment abnormally low when compared to a 'financial-autarky' rate calculated in the text. He does find, however, that the actual service of the debt crowded out investment. For the rescheduling countries, he shows that 1 percent of GDP paid abroad reduced domestic investment by 0.3 percent of GDP. This is identical to the correlation between investment and foreign finance observed in the 1960s. Copyright 1993 by American Economic Association.

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References

1986Increasing Returns and Long-Run Growth 1985Macroeconomic determinants of growth: Cross-country evidence 1988Financing vs. forgiving a debt overhang 1985Saving and the real interest rate in LDCs

Cited by

2003External Debt, Public Investment, and Growth in Low-Income Countries 2021Global Waves of Debt: Causes and Consequences 2003External Debt, Public Investment, and Growth in Low-Income Countries 1997The debt overhang and the disincentive to invest 2002External Debt and Growth 2012Total Public Debt and Growth in Developing Countries 2005Foreign capital flows and economic growth in East Asian countries 2009Debt Overhang or Debt Irrelevance?

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