I have examined the impact of short term external debt and long term external debt on economic growth of developing countries. N 28 T 25. I found long term external debt affects economic growth and short term external debt affects economic growth positively. Do you think such type of findings are intuitive about short term external debt?
Dear Muhammad Dawood,
If short-term foreign debt is repaid on time, the problem of the debt of the public finance system is usually resolved efficiently. An efficient and timely solution to the problem of the debt of the state public finance system may be determined by a high level of economic growth.
Best regards,
Dariusz Prokopowicz
Debt creates burden in economy when it is diverted instead of using for development. An intense debate is found of using external debt. But public economists are unanimously agreed that debt has positive intuition if it is spent for economic development. So I think your findings are consistent.
Dariusz Prokopowicz , Basharat Hossain , Abid Hussain
Thank you so much respected scholars. According to general debt cycle theory, financing gap theory debt should increase economic growth but reality is different. Mostly studies found negative relationship of external debt with economic growth. I got controversial results such as total external debt has positive effects, long term external debt has negative, public and private external debt has negative (which are actually types of long term external debt) and finally short term external debt has positive effects. I have more explanation and literature evidences but for short term external debt and economic growth i need more economic explanation as Dariusz Prokopowicz explained well.
I think an increase in short term public debt is equivalent with a government having a public deficit, which is the same as the government applies expansionary fiscal policy. This is expected for governments to do when it experience a recession according to orthodox Keynesian policy. Once recovery is restored the public deficit should end. Continuous increase in public debt in the long run is not a good policy because it will reduce economic growth and what you found it makes sense. But public debt must be measured as percentage of GDP. This is the variable to observe because large debt is not economically meaningful. Large counties should have large public debt but the public debt-to GDP-ratio is the variable that matter .
George K. Zestos great sir. Yah it is better that government should use short term external debt to cover the short run budget deficits, current account deficits and existing government is responsible to short term external debt servicing. As we see in developing countries they borrow billions of long term external debt and use it to their current expenditure, pay arears, and long term interest rate. In this way the new government face high debt burden and again use external financial sources to pay old debts and unable to invest in productive sectors and long term investment. So a government can make policy to use short term external debt for short run objectives and long term external debt for long term projects. In this way my empirical findings are logical.
Yes, I agree with you Muhammad, and whenever possible governments should always prefer to borrow domestically because if the public debt is in domestic currency countries do not go bankrupt.
George K Zestos
If all debt were to be channelled to economic activities they were intended for,, cet par, growth will be recorded in those sectors and thus the entire economy will witness some expansion.
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