The Impact of Debt Overhang on Emerging Countries

Debt overhang may impede a country’s investment and growth. The impact of external debt on a country’s economic growth through investment has created quite interesting results in the world especially in developing countries where internal and external borrowing have been usual. This thesis investigates the average impact of economic factors like investment, savings, real interest rates and GDP on real debt in eight countries over a period of 23 years starting in 1981. we employ panel data econometrics estimations to detect the relationship between real debt and economic growth. We explore the dynamic relationship between variables, using a panel cointegration technique, applied on eight emerging economies. Our results indicate that there is a non-linear impact of these factors on real debt. It is concluded that real debt of a country is adversely affected by GDP and positively affected by investment, savings and interest rate in that country. Keywords: D ebt, Time series analysis, GDP, Emerging countries