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Journal of Economic Integration 2022 September;37(3) :377-422.
DOI: https://doi.org/10.11130/jei.2022.37.3.377
Examining the Non-Linear Impact of External Debt on Economic Convergence

Thai Hong LeLan Trinh Thi Phan 

Faculty of Finance and Banking, VNU University of Economics and Business, Vietnam National University, Vietnam
Corresponding Author: Thai Hong Le ,Email: thailh@vnu.edu.vn
Copyright ©2022 Journal of Economic Integration
ABSTRACT
This article investigates the impact of external debt on economic convergence in 201 economies from 1990 to 2020. Panel data collected from the fiscal space database of the World Bank are analyzed using the conditional beta convergence framework. Results show that external debt negatively affects growth and there is no evidence to support the non-linear association. However, external debt influences the convergence speed in an inverted-U-shaped fashion. The economic convergence speeds up as the level of indebtedness increases to a threshold above which the convergence slows down as the level of foreign debts continues to increase. We also disaggregate external debt into its six sub-components and discover the non-linear effects of private debts and debts denominated in domestic currency on the convergence process.

JEL Classification
E01: Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
E62: Fiscal Policy
H63: Debt; Debt Management; Sovereign Debt
C23: Models with Panel Data; Longitudinal Data; Spatial Time Series
Keywords: beta convergence | economic growth | external debt | fixed effects | non-linear
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