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An Empirical Test of a New Theory of Economic Growth – The Relationship Between External Debt and Economic Development

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  • Carolyn Currie

Abstract

Analyses of the nature of debt relying on the theory of rational expectations conclude that the burden of public debt need not fall on future generations if the present generation anticipates the higher taxes needed in the future for debt servicing. However, there have been many instances where increases in budget deficits have been followed by a decrease in the savings propensity of the private sector. Foreign exchange earnings also have to be set aside. It appears that the main problem for countries in an early stage of economic development, is that often the borrowings have not been productively employed so that a national debt crises results. Foreign lenders become increasingly reluctant to lend further amounts to a country, which has been a net capital importer. This paper puts forward a methodology of testing a new theory of economic growth that emphasises key factors determining the success or failure of policies that change underlying economic structures, and hence would lead to an intrinsic monitoring of “over-borrowing”.

Suggested Citation

  • Carolyn Currie, 2005. "An Empirical Test of a New Theory of Economic Growth – The Relationship Between External Debt and Economic Development," Working Paper Series 144, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:wpaper:144
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    File URL: http://www.finance.uts.edu.au/research/wpapers/wp144.pdf
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    References listed on IDEAS

    as
    1. Gauche, Jerry N., 1998. "Binary economic modes for the privatization of public assets," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 27(3), pages 445-459.
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    More about this item

    Keywords

    economic growth; debt burden; regulation; ownership structures;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P11 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Planning, Coordination, and Reform
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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