Current and Long Run Challenges of Romania's External Debt Sustainability

The increasing reliance on public external debt stocks in Africa and other developing countries has raised the question of debt sustainability, especially in the face of Covid-19, which has forced many counties (both developed and developing) into an unforeseen and unplanned recession. This study contributes to the literature on debt sustainability by examining the effect of public debt on capital formation in Sub-Saharan Africa (SSA) from 2000 to 2008 using the pooled mean group estimation approach. The debt variables considered are external debt stock, debt service on external debt, and interest payment on external debt. Consistent with the overhang theory, our results show that increasing external debt stock and interest payment on external debts only have a marginal impact on capital formation in the short run and exerts a serious negative effect in the long run. Our results also show that debt service burden has a positive effect on gross fixed capital formation in the long run. Therefore, we argue that despite being faced with a huge debt service burden resulting from large external debt stock, SSA countries are not neglecting investments in critical infrastructures needed to drive economic growth. However, we recommend that increasing government revenue base, minimizing economic waste associated with public expenditure, and intensifying negotiations for debt relief may be a plausible way out.

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Can Pakistan Raise More External Debt? A Fiscal Reaction Approach

Business & Economic Review ◽

10.22547/ber/12.4.2 ◽

2020 ◽

Vol 12 (4) ◽

pp. 21-42

Author(s):

Sadia Mansoor ◽

Mirza Aqeel baig ◽

Irfan Lal

Keyword(s):

External Debt ◽

Negative Relationship ◽

Macroeconomic Policies ◽

Debt Sustainability ◽

Debt Burden ◽

Long Run ◽

Significant Negative Relationship ◽

Fiscal Reaction Function ◽

Debt Policy

This study has assessed the role of existing policies in determining the state of debt sustainability for the Pakistan economy (1980- June 2019) through fiscal reaction function. This study adds to the literature in two aspects. First, a policy index has been constructed to formulate a debt-policy interactive term that implies whether or not existing macroeconomic policies contribute in making external debt sustainable in Pakistan. Second, this study has gauged the potential sustainable external debt through in-sample forecast method. The estimated results obtained by the ARDL method show that Pakistan has just entered into a phase of unsustainable debt burden in the long run as fiscal reaction analysis exhibits the weak significant negative relationship between primary balance and external debt to GDP ratio. Moreover, existing macroeconomic policies also show a negative association with the primary balance that implies the ineffectiveness of policies in making external debt sustainable for Pakistan. This study suggests that an increase in foreign inflows through remittances or export earnings may improve the debt sustainability state in Pakistan.

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Thirlwall's law, external debt sustainability, and the balance-of-payments-constrained level and growth rates of output

Review of Keynesian Economics ◽

10.4337/roke.2019.04.05 ◽

2019 ◽

Vol 7 (4) ◽

pp. 486-497

Author(s):

Gustavo Bhering ◽

Franklin Serrano ◽

Fabio Freitas

Keyword(s):

Capital Flows ◽

Income Elasticity ◽

Growth Models ◽

Critical Evaluation ◽

External Debt ◽

Balance Of Payments ◽

Debt Sustainability ◽

Rate Of Growth ◽

Long Run ◽

Alternative Approach

Thirlwall's law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of balance-of-payments-constrained long-run growth models with balanced trade. Some authors have extended the analysis to incorporate long-run net capital flows. We provide a critical evaluation of these efforts and propose an alternative approach to deal with long-run external debt sustainability, based on two key features. First, we treat the external debt-to-exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long-run capital flows can positively affect the long-run level of output, but not the rate of growth compatible with the balance-of-payments constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall's law still holds.

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On Foreign Debt Sustainability of Developing Countries: Towards a Long Run Approach for Development

SSRN Electronic Journal ◽

10.2139/ssrn.2000886 ◽

2003 ◽

Cited By ~ 1

Author(s):

Marianna Belloc ◽

Pietro Vertova

Keyword(s):

Developing Countries ◽

Foreign Debt ◽

Debt Sustainability ◽

Long Run

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The Debt Overhang Hypothesis: Evidence from Pakistan

Studies in Business and Economics ◽

10.1515/sbe-2016-0012 ◽

2016 ◽

Vol 11 (1) ◽

pp. 140-151 ◽

Cited By ~ 2

Author(s):

Muhammad Imran Shah ◽

Irfan Ullah ◽

Zia Ur Rahman ◽

Nadeem Jan

Keyword(s):

Economic Growth ◽

Dynamic Behaviour ◽

Negative Impact ◽

Labour Force ◽

External Debt ◽

Unit Roots ◽

Debt Overhang ◽

Debt Burden ◽

Long Run ◽

Domestic Labour

AbstractThis study investigates the debt overhang hypothesis for Pakistan in the period 1960-2007. The study examines empirically the dynamic behaviour of GDP, debt services, the employed labour force and investment using the time series concepts of unit roots, cointegration, error correlation and causality. Our findings suggest that debt-servicing has a negative impact on the productivity of both labour and capital, and that in turn has adversely affected economic growth. By severely constraining the ability of the country to service debt, this lends support to the debt-overhang hypothesis in Pakistan. The long run relation between debt services and economic growth implies that future increases in output will drain away in form of high debt service payments to lender country as external debt acts like a tax on output. More specifically, foreign creditors will benefit more from the rise in productivity than will domestic producers and labour. This suggests that domestic labour and capital are the ultimate losers from this heavy debt burden.

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Foreign Direct Investment, External Debt, and Balance of Payment: A Causality Analysis for Bangladesh

Bangladesh Journal of Public Administration (BJPA) ◽

10.36609/bjpa.v27i2.67 ◽

2020 ◽

Author(s):

Muhammad Mahmud Mostafa

Keyword(s):

Foreign Direct Investment ◽

Granger Causality ◽

Direct Investment ◽

Negative Impact ◽

External Debt ◽

Causality Analysis ◽

Causality Test ◽

Long Run ◽

Significant Negative Impact ◽

Short Run

The purpose of this study is to analyze the causal relationship of external debt and balance of payment with foreign direct investment (FDI) in Bangladesh for the period of 1980 to 2017 through the application of Johansen Cointegration technique, Vector Error Correction Model (VECM), and Granger Causality approach. Results of cointegration and VECM indicate a significant long-run relationship between dependent (FDI) and independent variables (external debt and balance of payment). External debt is found to have a significant negative impact on FDI in the long-run, but it is found insignificant in the short-run. In contrast, the balance of payment has a significant positive effect on FDI both in the long-run and short-run. Results of the Granger causality test reveal that there exists bidirectional short-run causality between the balance of payment and FDI; that is, both the balance of payment and FDI affect each other. But no unidirectional or bidirectional short-run causality is found between external debt and FDI. Keywords: FDI, external debt, balance of payment, cointegration, VECM, causality

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Social development and public debt sustainability

Social Cohesion and Development ◽

10.12681/scad.25739 ◽

2021 ◽

Vol 14 (2) ◽

pp. 79

Author(s):

Chara Vavoura ◽

Ioannis Vavouras

Keyword(s):

Fiscal Policy ◽

Social Development ◽

Public Debt ◽

Debt Crisis ◽

Necessary Condition ◽

Debt Sustainability ◽

Long Run ◽

Policy Measures ◽

Of Greece

The issue of public debt sustainability is of exceptional importance in the case of Greece. As a rule, the relevant analysis is limited to the examination of the fiscal policy measures reported to contribute to reducing public debt leaving out the investigation of the factors that caused the country’s debt crisis. The objective of the present paper is to explore the determinants of Greece’s debt crisis and the strategy required to address it. Our work highlights the issue of social development, which is found to be a necessary condition for ensuring the long run sustainability of the country’s public debt.

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Analysis of Capital Flight in Developing Countries: A Study on Turkey between 1980 and 2010

International Conference on Eurasian Economies 2013 ◽

10.36880/c04.00702 ◽

2013 ◽

Author(s):

Ali Özer ◽

Aslı Cansın Doker ◽

Adem Türkmen

Keyword(s):

Foreign Direct Investment ◽

Direct Investment ◽

Consumer Price Index ◽

External Debt ◽

Estimation Method ◽

Ordinary Least Squares ◽

Capital Flight ◽

Causality Test ◽

Macroeconomic Variables ◽

Long Run

The aim of this study is to determine whether there is a relationship between Capital flight and some macroeconomic variables by using anual data between 1980 and 2010 in Turkey. Capital flight measured by World Bank (1985) method, was used as dependent variable and external debt, foreign direct investment, uncertainty, real GDP growth, exchange rates, trade balance and consumer price index were used as independent variables. Ordinary Least squares estimation method, Johansen-Jeselius cointegration test, Granger causality test and variance decomposition results produced by VEC model were used in the study. After those econometrics and economics analysis, this paper put forward that there is a long run relationship between some macroeconomic variables and capital flight.The results show external debt, foreign direct investment inflows, and foreign reserves to be the major effector of capital flight.

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