Economic and political determinants of external debt: A comparative analysis for countries with different income level

Determining the determinants of external debt is critical for both external debt sustainability and external debt management policies. In this context, it is clear that the majority of studies on the determinants of external debt concentrate on economic factors. The effects of political and economic factors on external debt were examined in this study. Current account deficit, inflation, money supply, exchange rate, defense expenditures, domestic savings, and foreign direct investments are all explanatory variables in the macroeconomic factors model of external debt. The political factors model incorporates the political regime, political stability, government systems, corruption control, economic growth, foreign trade openness, and budget deficits. According to the findings of the analysis, lower-middle income countries extermal debt is increased by money supply, exchange rate, budget deficits, and political stability, while corruption control decreases external debt. In upper-middle-income countries, on the other hand, it has been determined that the current account deficit increases external debt, whereas the presidential system, which is one of the economic growth and government systems, decreases external debt. According to the findings, the impact aspects and degrees of economic and political factors differ across country groups. These distinctions have significant policy implications for decision makers concerned with the sustainability of external debt and the effective application of external debt management policies.