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Determinants of External Indebtedness in Heavily Indebted Poor Countries: What Macroeconomic and Socio-Economic Factors Matter?

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  • Chukwuebuka Bernard Azolibe

Abstract

This study specifically examined whether macroeconomic and socio-economic factors such as corruption, foreign aid, government expenditure, external reserve, population growth, economic growth, and unemployment rate matter in increasing or reducing the level of external indebtedness in heavily indebted poor countries (HIPCs). Both static panel data and panel fully modified ordinary least squares (OLS) estimation techniques were employed. Using panel data set of all the 39 HIPCs covering period of 1996 to 2018, we found out that the factors that matter in heightening the intake of external debt are high rate of corruption that leads to mismanagement of public funds, high dependency on foreign aids, increase in government expenditure, population growth, and unemployment rate. However, external reserve and gross domestic product (GDP) has a reducing effect on their external indebtedness. In terms of causal relationship, only corruption, population growth, and GDP have a causal relationship with external debt, while other variables exhibited a zero causal relationship with external debt. JEL Classifications : F34, E6, E24

Suggested Citation

  • Chukwuebuka Bernard Azolibe, 2021. "Determinants of External Indebtedness in Heavily Indebted Poor Countries: What Macroeconomic and Socio-Economic Factors Matter?," The American Economist, Sage Publications, vol. 66(2), pages 249-264, October.
    • Handle: RePEc:sae:amerec:v:66:y:2021:i:2:p:249-264
    DOI: 10.1177/0569434520938326
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    More about this item

    Keywords

    external indebtedness; macroeconomic factors; socio-economic factors; heavily indebted poor countries;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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