International Conference on Eurasian Economies
18-20 June 2018 – Tashkent, UZBEKISTAN
Paper detail
Paper ID : 2139
Status : Paper published
Language : English
Topic : Growth and Development
Presenter: Prof. Dr. Halit Yanıkkaya
Session : 4A Macroeconomics
Does External Debt Matter for Investment: Evidence from GMM
Does External Debt Matter for Investment: Evidence from GMM
- Prof. Dr. Halit Yanıkkaya (Gebze Technical University, Türkiye)
- Prof. Dr. Taner Turan (Gebze Technical University, Türkiye)
Abstract
In theory, the main channel which through external debt would affect the growth rate is investment. On the one hand, external debt would boost the investment by providing more resources than domestically available. On the other hand, external debt would create a disincentive effect, as suggested by debt overhang arguments. Since it is not clear which effect will dominate in practice, empirical studies would be helpful to shed light on the issue. Moreover, one can argue that the effect of external debt on the private and public investment does not need to be the same. Therefore, aside from total investment we investigate the impact of external debt on disaggregated investment. We use dynamic panel analysis and data for a large sample of countries to investigate the subject at hand. Our results indicate that there exists a negative relationship between external debt and total investment. Furthermore, we find that both total and public external debt lowers the private investment, consistent with debt overhang arguments. On the other hand, there is no relationship between the external debt and government investment.
JEL codes:
Yanıkkaya, Halit, Turan, Taner (2018). "Does External Debt Matter for Investment: Evidence from GMM" in Proceedings of International Conference of Eurasian Economies 2018, pp.81-85, Tashkent, UZBEKISTAN.
DOI: https://doi.org/10.36880/C10.02139
