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Slow Growth and Large LDC Debt in the Eighties: An Empirical Analysis

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  • Cohen, Daniel

Abstract

This paper aims to disentangle the correlation between LDC debt and growth in the 1980s. We show that large debt was not an unconditional predictor of slow growth in the eighties and that investment was not abnormally low, when compared with a `financial autarky' rate, calculated in the text. We do find, however, that debt service crowded out investment. For the rescheduling countries we show that 1% of GDP paid abroad reduced domestic investment by 0.3% of GDP. This is shown to be consistent with the prediction of the theoretical model presented in the text, and identical to the correlation between investment and foreign finance observed in the 1960s.

Suggested Citation

  • Cohen, Daniel, 1991. "Slow Growth and Large LDC Debt in the Eighties: An Empirical Analysis," CEPR Discussion Papers 461, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:461
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    References listed on IDEAS

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    1. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters, in: National Saving and Economic Performance, pages 271-304, National Bureau of Economic Research, Inc.
    2. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472, National Bureau of Economic Research, Inc.
    3. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    4. Cohen Daniel, 1988. "Is the discount on the secondary market a case for ldc debt relief ?," CEPREMAP Working Papers (Couverture Orange) 8823, CEPREMAP.
    5. Daniel Cohen & Philippe Michel, 1988. "How Should Control Theory Be Used to Calculate a Time-Consistent Government Policy?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(2), pages 263-274.
    6. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
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    Cited by:

    1. Manop Udomkerdmongkol & Holger Görg & Oliver Morrissey, 2006. "Foreign Direct Investment And Exchange Rates: A Case Study Of U.S. Fdi In Emerging Market Countries," Discussion Papers 06/05, University of Nottingham, School of Economics.
    2. Samuel Adams & Daniel Sakyi & Eric Evans Osei Opoku, 2016. "Capital Inflows and Domestic Investment in Sub-Saharan Africa," Foreign Trade Review, , vol. 51(4), pages 328-343, November.
    3. Manop Udomkerdmongkol & Oliver Morrissey & Holger Görg, 2009. "Exchange Rates and Outward Foreign Direct Investment: US FDI in Emerging Economies," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 754-764, November.
    4. Montiel, Peter J., 1993. "Fiscal aspects of developing countrydebt problems and debt and debt-service reduction operations : a conceptual framework," Policy Research Working Paper Series 1073, The World Bank.
    5. Manop Udomkerdmongkol & Oliver Morrissey, 2008. "Political Regime, Private Investment, and Foreign Direct Investment in Developing Countries," WIDER Working Paper Series RP2008-109, World Institute for Development Economic Research (UNU-WIDER).
    6. Holger Görg & Oliver Morrissey & Manop Udomkerdmongkol, 2007. "Investment and Sources of Investment Finance in Developing Countries," Discussion Papers 07/16, University of Nottingham, GEP.

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    Keywords

    Growth; LDC Debt; Rescheduling;
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