Prague Economic Papers 2004, 13(3):261-277 | DOI: 10.18267/j.pep.242

An Empirical Investigation Into the Determinants of External Indebtedness

Menbere Workie Tiruneh
University of Munich, Empirical Research Group, Ludwigstrasse 28/RG, 80539 - Munich, Germany and Institute of Slovak and World Economy, Slovak Academy of Sciences, Šancova 56, 811 05 - Bratislava, Slovakia (e-mail: menberew2000@yahoo.com).

This paper finds that poverty (the savings gap), income instability, and external factors that include debt service payments and capital flight to be the main causes of overseas borrowing by developing countries in the 1980s and 1990s. As far as the empirical strategy is concerned, the application of a panel data approach seems to be highly preferred, as it allows to control time-specific events that are linked to overseas borrowing, particularly given the rapid changes in the global macroeconomic environment in the past years. Moreover, this strategy helps to produce a more robust explanation by allowing to incorporate country-specific factors as developing countries themselves are heterogeneous in terms of their colonial heritages, geopolitical and strategic significance, and creditworthiness, all affecting the level of indebtedness and the potential bargaining power to manage the subsequent debt crisis.

Keywords: panel data, external debt, heavily indebted poor countries
JEL classification: C13, C33

Published: January 1, 2004  Show citation

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Tiruneh, M.W. (2004). An Empirical Investigation Into the Determinants of External Indebtedness. Prague Economic Papers, 13(3), 261-277. doi: 10.18267/j.pep.242
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