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Short-term debt is not bad for economic growth. Really?: Empirical evidence from developing countries

Author

Listed:
  • Yongseung Han

    (University of North Georgia)

  • Myeong Hwan Kim

    (Purdue University Fort Wayne)

Abstract

This study examines the impact of debt maturity on the relationship between external debt and economic growth. First, we established the stylized facts on the external debt, the share of short-term debt, and economic growth – 1) there is an inverse correlation between the ratio of total external debt to GDP and the share of short-term debt, 2) the lower the debt-to-GDP ratio, the higher the economic growth, as measured by the GDP per capita growth rate, and 3) only when the debt-to-GDP ratio is low, the higher the proportion of short-term debt, the higher the economic growth. Then, we estimated the impact of short-term debt on economic growth in a different specification to find that the GDP per capita growth rate drops by 2.4% at the median value of the debt-to-GDP ratio (55%). However, the exact magnitude of the decline depends on the share of short-term debt. Thanks to the positive effect of short-term debt, GDP per capita growth can be positive when the debt-to-GDP ratio is very low, e.g., below 20%.

Suggested Citation

  • Yongseung Han & Myeong Hwan Kim, 2024. "Short-term debt is not bad for economic growth. Really?: Empirical evidence from developing countries," Economics Bulletin, AccessEcon, vol. 44(4), pages 1584-1596.
    • Handle: RePEc:ebl:ecbull:eb-24-00379
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    External Debt; Economic Growth; Debt Maturity;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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