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:	Macroeconomics: Production E230 International Lending and Debt Problems F340 National Debt Debt Management Sovereign Debt H630
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
_version_	1764395431594295296

Debt Overhang or Debt Irrelevance?

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