252 Lex ET Scientia. Economics Series
LESIJ NO. XVIII, VOL. 1/2011
FROM EXTERNAL DEBT TO ECONOMIC GROWTH … AND BACK
Oana Simona (CARAMAN) HUDEA*
This paper is meant to trace the relationship existing between external debt and economic
growth for 109 countries spread all over the world. We have resorted for this study to
cross-sectional data, the economic modelling being simultaneously made for a three-year period.
After having constructed four models and after having estimated them by econometric techniques,
we have selected the most appropriate of them, which is in fact the version to be build upon within
future personal studies. The results indicated as optimum the model including GDP in logarithm
as endogenous variable and total external debt in logarithm and development level dummy as
exogenous variables. The analysis revealed a positive relationship between external debt and
economic growth, indicating that the threshold above which the indebting influence on the
economic performance should become negative has not been reached yet. The coefficients
obtained within the estimations performed, construed as elasticities, show that, while GDP is
inelastic in relation with debt, the latter has a supra-unitary elasticity, therefore its modification
being ampler than the GDP one.
Keywords: economic growth, external debt, impact factors, estimates, economic modelling
This study, based on an analysis made on 109 countries, for a three year period, that is
2006, 2007 and 2008, with annual data, is meant to reveal several important issues on the
economic growth phenomenon and to analyse some of its main influencing factors.
According to the economic theory, economic growth represents the increase of the real
GDP from a period to another one and reflects the living standard and well being of a society. This
is the reason why it is highly important to identify the key elements with major impact on
economic growth and to determine the type of relationships established with each and every single
such item, so as to provide accurate arguments for a ground development of a nation. The said
factors cover a large range, comprising, among others, without limitation, investments, unemploy-
ment rate, budgetary deficit, exports, imports, governmental expenses, external debt or population
increase. Given their significant number, we have decided to take them separately and to further
render our analysis increasingly complex in subsequent studies.
Therefore, we have started, by resorting to only one item, save for GDP, meaning external
debt, taken consecutively as exogenous and endogenous variable. Subsequently, we have
separately added two dummies, one relating to the geographical layout and the other one to the
level of development of the analysed countries. After having taken into account various facets of
* Assistant, Faculty of Social and Administrative Sciences, “Nicolae Titulescu” University. Bucharest. Ph.D
Candidate, Academy of Economic Studies, Bucharest. This work was cofinaced from the European Social Fund
through Sectoral Operational Programme Human Resources Development 2007-2013, project number
POSDRU/107/1.5/S/77213 „Ph.D. for a career in interdisciplinary economic research at the European standards” –
ASE Bucharest (e-mail: email@example.com).