Debt Overhang or Debt Irrelevance?

Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of develo...

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Main Authors: Cordella, Tito, Ricci, Luca Antonio, Ruiz-Arranz, Marta
Format: Journal Article
Language:EN
Published: 2012
Subjects:
Online Access:http://hdl.handle.net/10986/5544
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recordtype oai_dc
spelling okr-10986-55442021-04-23T14:02:22Z Debt Overhang or Debt Irrelevance? Cordella, Tito Ricci, Luca Antonio Ruiz-Arranz, Marta Macroeconomics: Production E230 International Lending and Debt Problems F340 National Debt Debt Management Sovereign Debt H630 Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20-25 percent of GDP; however, debt becomes irrelevant above 70-80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one. 2012-03-30T07:33:20Z 2012-03-30T07:33:20Z 2010 Journal Article Imf Staff Papers 10207635 http://hdl.handle.net/10986/5544 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language EN
topic Macroeconomics: Production E230
International Lending and Debt Problems F340
National Debt
Debt Management
Sovereign Debt H630
spellingShingle Macroeconomics: Production E230
International Lending and Debt Problems F340
National Debt
Debt Management
Sovereign Debt H630
Cordella, Tito
Ricci, Luca Antonio
Ruiz-Arranz, Marta
Debt Overhang or Debt Irrelevance?
relation http://creativecommons.org/licenses/by-nc-nd/3.0/igo
description Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20-25 percent of GDP; however, debt becomes irrelevant above 70-80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one.
format Journal Article
author Cordella, Tito
Ricci, Luca Antonio
Ruiz-Arranz, Marta
author_facet Cordella, Tito
Ricci, Luca Antonio
Ruiz-Arranz, Marta
author_sort Cordella, Tito
title Debt Overhang or Debt Irrelevance?
title_short Debt Overhang or Debt Irrelevance?
title_full Debt Overhang or Debt Irrelevance?
title_fullStr Debt Overhang or Debt Irrelevance?
title_full_unstemmed Debt Overhang or Debt Irrelevance?
title_sort debt overhang or debt irrelevance?
publishDate 2012
url http://hdl.handle.net/10986/5544
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