Calamities, Debt, and Growth in Developing Countries
Public debt in developing economies rose at a fast clip during 2020–21, at least partly due to the onset of the global Covid-19 pandemic. Nobel laureate Paul Krugman opined in early 2021 that “fighting covid is like fighting a war.” This paper argu...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099321004252230289/IDU0de4dbded0c5a20423d09daa0812ba37ea173 http://hdl.handle.net/10986/37337 |
| Summary: | Public debt in developing economies
rose at a fast clip during 2020–21, at least partly due to
the onset of the global Covid-19 pandemic. Nobel laureate
Paul Krugman opined in early 2021 that “fighting covid is
like fighting a war.” This paper argues that the Covid-19
pandemic shares many traits with natural disasters, except
for the global nature of the pandemic shock. This paper
empirically examines trends in debt and economic growth
around the onset of three types of calamities, namely
natural disasters, armed conflicts, and external-debt
distress in developing countries. The estimations provide
quantitative estimates of differences in growth and debt
trends in economies suffering episodes of calamities
relative to the trends observed in economies not
experiencing calamities. The paper finds that debt and
growth evolve quite differently depending on the type of
calamity. The evidence indicates that public debt and output
growth tend to rise faster after natural disasters than in
the counterfactual scenario without disasters, thus
illustrating how debt-financed fiscal expansions can help
economic reconstruction. The findings are different for
episodes of debt distress defined as periods of debt
restructuring, however. Economies experiencing debt distress
are associated with growth trends that are on average below
the growth rates of unaffected economies prior to and after
the beginning of an episode of debt restructuring. |
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