An Empirical Testing of Debt Overhang Hypothesis

This research study deals with seeking for the relationship and the sub-sequential effects of economic variables such as external debt (ED), GDP growth (GDP), inflation rate (I), interest rate(R) and trade openness(TO) on the domestic investment (INV) and GDP growth in South East Asian Nations (ASEAN) for example Philippine, Malaysia, Indonesia, and Thailand from 1977 to 2013. In this thesis, the authors employed the OLS method to be applied for the considered case problems countries to find the relationship and the interactions between the economic influential factors on the INV and GDP growth, moreover for the group of countries panel regression was applied to discover out the interaction between the economic variables. The final obtained results indicated that the interaction between the R and INV is negative. In addition, the correlation between I and INV is negative; otherwise the GDP growth has a positive effect on the INV. Moreover, the ED in some countries has a positive and in some countries has a negative effect the INV. According to the obtained results, the interaction between I and GDP growth is negative and for the ED, INV and TO in some countries is positive regarding the selected countries is negative. Keyword: external debt, GDP growth, interest rate, domestic investment, inflation rate, trade openness.