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Examining the Non-Linear Impact of External Debt on Economic Convergence

Author

Listed:
  • Hong Le, Thai

    (Vietnam National University, Hanoi, Vietnam)

  • Trinh Thi Phan, Lan

    (Vietnam National University, Hanoi, Vietnam)

Abstract

This article investigates the impact of external debt on economic convergence in 201 economies from 1990 to 2020. Panel data collected from the fiscal space database of the World Bank are analyzed using the conditional beta convergence framework. Results show that external debt negatively affects growth and there is no evidence to support the non-linear association. However, external debt influences the convergence speed in an inverted-U-shaped fashion. The economic convergence speeds up as the level of indebtedness increases to a threshold above which the convergence slows down as the level of foreign debts continues to increase. We also disaggregate external debt into its six sub-components and discover the non-linear effects of private debts and debts denominated in domestic currency on the convergence process.

Suggested Citation

  • Hong Le, Thai & Trinh Thi Phan, Lan, 2022. "Examining the Non-Linear Impact of External Debt on Economic Convergence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 37(3), pages 377-422.
    • Handle: RePEc:ris:integr:0854
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    Cited by:

    1. Cham, Yaya, 2023. "Inflation and Public Debt Reversals in the West African Monetary Zone (WAMZ) Economies," MPRA Paper 117027, University Library of Munich, Germany.

    More about this item

    Keywords

    beta convergence; economic growth; external debt; fixed effects; non-linear;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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