(Luận văn) relationship between external debt and economic growth in selected developing countries

t to ng hi ep UNIVERSITY OF ECONOMICS STUDIES HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL THE HAGUE THE NETHERLANDS w n lo VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ad ju y th yi pl ua al n RELATIONSHIP BETWEEN EXTERNAL DEBT AND ECONOMIC GROWTH IN SELECTED DEVELOPING COUNTRIES n va ll fu oi m at nh z BY z k jm ht vb NGUYEN THANH THAI CHAN om l.c gm an Lu MASTER OF ARTS IN DEVELOPMENT ECONOMICS n va ey t re HO CHI MINH CITY, December 2014 t to ng hi ep UNIVERSITY OF ECONOMICS STUDIES HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL THE HAGUE THE NETHERLANDS w n lo ad VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ju y th yi pl al n ua RELATIONSHIP BETWEEN EXTERNAL DEBT AND ECONOMIC GROWTH IN SELECTED DEVELOPING COUNTRIES n va ll fu m oi A thesis submitted in partial fulfilment of the requirements for the degree of nh MASTER OF ARTS IN DEVELOPMENT ECONOMICS at z z om l.c gm NGUYEN THANH THAI CHAN k jm ht vb By an Lu ey t re HO CHI MINH CITY, December, 2014 n Ph.D Pham Khanh Nam va Academic Supervisor: TABLE OF CONTENT Chapter 1: INTRODUCTION t to Problems statement ng hi Research objectives ep Scope of study Structure of thesis w n Chapter 2: LITERATURE REVIEWS lo ad Theorectical reviews ju y th 1.1 External debt’s concept yi 1.2 Economic Growth Theories and Models pl 1.3 Theories and hypothesis on the relationship between external debt and al n ua economic growth va Empirical Literature Reviews 14 n Chapter 3: RESEARCH METHODOLOGY 20 fu ll Overview of external debt and economic growth in developing countrieS m oi 20 nh at Analytical Framework 23 z The Econometric Model 25 z ht vb Data 27 Data Description 27 4.2 Summary table of variables and data source 27 k jm 4.1 gm Estimation Approach 29 l.c Chapter 4: RESULTS 30 om Descriptive Statistic Data 30 an Lu Econometric Results 31 3.1.2 Using Fixed-effects Technique 34 ey 3.1.1 All coefficients are constant across time and individual 33 t re Linear equation: Yi,t = αXi,t + γDi,t + ui,t 33 n 3.1 va Results Expression 33 3.1.3 Using Random-effects Technique 34 3.1.4 Choosing between Fixed –effects (FEM) and Random-effects t to Model (REM) 35 ng hi ep 3.2 Quadratic equation: Yi,t = αXi,t + γDi,t + δD2i,t + ui,t 36 3.3 Tests for correcting the chosen model – FEM 37 3.4 Analyzing the estimation results and economic meanings of chosen w n model - FEM (eq3) 38 lo ad 3.5 Discussion 42 y th Chapter 5: CONCLUSIONS 46 ju yi Conclusions 46 pl Policy Implications 48 al n ua Limitation of thesis 50 va REFERNCES 51-54 n APPENDIX 55 ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re TABLES & FIGURES t to Figure 1.1 Solow Model Production Function ………………………………….8 ng hi Figure 1.2 Laffer Debt Curve ………………………………………………13 ep Figure 1.3 Debt Threshold Curve 18 Table 3.1 External debt and GDP in main areas of developing countries …… 20 w n Figure 3.1 Extenal Debt and Economic Growth Framework …………… 24 lo ad Table 3.2 Summary of Descriptive Variables ………………………………28 ju y th Table 4.1 Summary Statistics of Variables ………………………………… 30 yi Table 4.2 Summary of Regresssion Result 32 pl n ua al APPENDIX va n EXTERNAL DEBT OVERVIEW 55-59 fu ll DETAILED POLICIES ON EXTERNAL DEBT ISSUE 60-64 m oi TABLE 1: OLS RESULT ………………………………………………………65 nh at TABLE 2: OLS WITH DUMMY VARIABLE ……………………………… 66 z TABLE 3: FIXED-EFFECTS MODEL RESULT …………………………… 67 z ht vb TABLE 4: RANDOM-EFFECTS MODEL RESULT …………………… 68 jm TABLE 5: HAUSMAN TEST ………………………………………………….69 k TABLE 6: FIXED-EFFECTS MODEL RESULT FOR EQUATION ………70 gm TABLE 7: TESTING FOR MULTICOLLINEARITY …………………… .71 l.c TABLE 8: TESTING FOR HETEROSKEDASTICITY ……………………….72 om an Lu n va ey t re Chapter INTRODUCTION t to Problems statement ng hi During three last decades from 1950s, the issue of financial deficit remained ep its normal level of acceptance and debts from external sources were considered as w an indispensable solution for the national shortage of capital Many countries in the n lo world had different motivation to borrow the foreign source of capital to enhance ad their economy For developing countries, the deficit in current account due to a big y th lack of “savings and investment” has approached the foreign capital and become ju indebted yi external inevitably However, in 1982, Mexico claimed the pl unserviceableness of its debt and remarked the time of severe debt crisis in the al n ua history (Buffie, 1989) This is the condition when the external debt of one country va exceeds the capability of repaying the interest and the principal of its loans Up till n now, the issue of external debt as well as its serving has become critical and fu ll widespread in the world, which has made its impact on economic growth more and oi m more questionable and catchy nh at Policy makers and economists have paid a great attention to investigate the z relationship between external debt and economic growth to evaluate the impact of z circumstances, the more developing countries jm economic ht vb external debt on economic growth and find out the reasons Under the present approach their k globalization and interrogation, the higher risk of debt crisis they have to bear due gm l.c to the easy accession to the external sources of foreign loans Khan and Ul Haque (1985) considered this risk as an explosive one to emphasize its potential threat to om the whole economy Therefore the issue of external debt has always kept a an Lu significant concern related to development economics and become the never old ey institutions or from other international sources For developing countries, due to t re deficit by borrowing domestically from a private sector through financial n Any economy which experienced a fiscal deficit can finance the public va topic of various researches from the economists to policy makers the lack of the strong private sectors and well-established banking system, the available source of domestic capital input are almost insufficient all the time t to Facing the nonstop demands for investment and development, many developing ng hi countries have no way but borrowing extensively from international lenders and ep other external sources This is also the reason why the relationship between external debt and economic growth has an outstanding correlation in developing countries w n and many studies also choose developing countries as main object of research If the lo ad government or policy makers not have a correct and comprehensive evaluation y th on this relationship as well as its impact, the issue of economic growth can be a big ju yi puzzle pl Some countries believe in the positive impact of external debt on economic al n ua growth and easily get trap in the debt crisis As Amoateng and Amoako-Adu (1996) va found that GDP growth shared a positive relationship with debt service Otherwise, n the others are scare of debt burden and minimize the external loans but they cannot fu ll generate the economic growth due to the shortage of capital According to Maureen m oi (2001), external debt has a negative impact on private investment and hinders the nh at economic growth as a result Practically, the external debt issue which has been z widely known for the debt overhang theory and crowding out effect can definitely z ht vb affect the economic growth in some ways by imposing the threats and vulnerability jm for the developing economies Specifically, external debt which is larger than the k economy scale of borrowing countries can certainly lead to a risky capital deficit to gm hinder private investment channels, which can result in a retrograde economic l.c growth rate Besides, using export to service the debt of developing countries may om make a negative impact on economic growth through drawing the income from the an Lu service activities But it cannot be denied that external debt can provide the physical ey policies t re developing countries to adjust and boost their economic growth with the reasonable n linkage between external debt and economic growth can give best tool for va capital input that helps to boost the economic growth rate Therefore, finding the Research objectives The study aims to explore whether there is a relationship between the t to ng external debt and economic growth or not by using the panel data of selected hi developing countries in the fixed period Focusing on the tests to answer the ep question if there is a linkage, how the relationship can turn out Under the specific w collected data, this study aims to answer the questions if the relationship is positive n lo or negative This relationship is expected to be linear but with reference to previous ad empirical researches, this study also attempts to find out whether a nonlinear y th relationship exists or not ju yi Scope of study pl al ua Since developing countries are striving for sustainable economic growth, n they likely need to deal with the problem of debt most of the time, especially the va n level of external debt There are many researches on the impact of the external debt fu ll on economic growth of a specific country with time series or a group of countries in m oi the same area but there are few ones covering the range of many areas Moreover, nh many existing researches have focused on evaluating the impact of external debt on at z investment and saving levels rather than the analysis of the relationship between the z vb external debt and economic growth itself jm ht Although there are many studies on this topic with sample of different k developing countries in previous period far back then, there are still few researches gm focusing on this issue at the recent time with detail This is the reason why this l.c study chooses to explore the nature of relationship and cover the sample of om representative developing countries which are equally distributed in Africa; Latin an Lu America and Asia as: South Africa, Nigeria; Mexico, Brazil; Vietnam and India for n va the period of 20 years from 1990 to 2009 Structure of thesis This thesis will consist of chapters and each chapter will cover the following content Chapter gives the general introduction about the research topic ey t re including the problem statement to explain the importance of external debt in relationship with economic growth; the main research objectives to find out what t to should be studied in this relationship and the scope of study to limit the research ng hi sample ep Then, chapter which is named literature review presents two main parts As the first part, theoretical review covers the theories and hypothesis about w n relationship between external debt and economic growth Some models or citation lo ad can be used to illustrate for the theories and the determinants The second part y th mainly focuses on empirical reviews on this relationship as well as the related ju yi determinants with the citation and brief findings drawn from the previous researches pl Next, chapter aims at explaining the methodology of research A brief al n ua overview of practical problem can be reminded, then the main part focuses on the va building of econometric model The data is then described in detail and the n variables in function can be clarified fu ll Chapter presents the results from regression with a descriptive statistic m oi dataset Some discussions can be generated in the process of looking back and nh at comparing with the literature review z And finally, chapter gives a conclusion for what has been found and raises z k jm as the impact of external debt on economic growth ht vb some policy implications for what to when determining the relationship as well om l.c gm an Lu n va ey t re Chapter LITERATURE REVIEWS Theoretical reviews 1.1 External debt’s concept t to ng hi ep Before entering the literature review focusing on relationship between the economic growth and external debt, a brief definition of external debt should be w n included to present a clear overview External debt which is also called as foreign lo ad debt is known as the part of the total debt in a country that is owed to creditors ju y th outside the country The governments, corporations or private households are able to become the debtors under the circumstance In the other ways, “total external yi pl debt is a debt owed to non-residents repayable in foreign currency, goods or al ua services” (World Bank World Indicators Definition, 2000) n To sum up, total external debt is the sum of public, publicly guaranteed, and va n private nonguaranteed long-term debt, use of IMF credit, and short-term debt fu ll Short-term debt includes all debt having an original maturity of one year or less and m oi interest in arrears on long-term debt Total external debt is the debt at any given nh time, as total loans of liabilities at that time, not including debt service reserve, at z requires the borrower to pay the original debt with or without interest, in the future, z ht vb and this debt is owed by residents with no residence in the country, according to the jm definition of eight international statistical analytical organizations of external debt, k including Bank for International Settlements, the Commonwealth Secretariat, the gm European Statistical Organization, International Monetary Fund, the Organization l.c for Cooperation and Development Economics, Secretariat of the Paris Club, om Conference on Trade and Development United Nations The external debt of the an Lu country's balance comprise of all current liabilities (excluding debt service reserve) ey country holds) According to the Glossary of banking and Finance Peter Collin t re reside outside the country (including the national debt by a non-resident in that n Besides,eExternal debt can also be defined by national loans for creditors who va to pay the principals and interest in respect of external debt in the country Indicators of external debt To evaluate the level external debt to an economy, there are many indicators t to ng which are used by international financial institutions with a limitation to show the hi level of debt sustainability as follows: ep  Total external debt / GDP ≤ 40% for the debt sustainability w n  Total external debt / export value ≤ 150% lo ad  Debt service / export value ≤15% is considered sustainable debt y th ju  Repayment / Export; yi pl  Gain / Export; ua al  Gain / GNI (Gross National Income); n  Short-term debt / Total debt; va n  Preferential Debt / Total Debt; ll fu • Multilateral Debt / Total Debt; oi m • International reserves / total debt; at nh • Pay Debt / Total revenues: There are safety limits from 10% - 12% z To ensure the safety of the national debt and government debt, countries often z ht vb use the following criteria limit the borrowing and repayment: jm i) Limit the national debt does not exceed 50-60% of GDP, or not exceed k 150% of exports gm ii) Service national debt does not exceed 15% of exports and services of om l.c government’s debt does not exceed 10% of the budget Based on the above indicators, the international financial institutions can an Lu assess the level of debt and the ability to finance one economy The index is also 58 ey the level of debt Unlike domestic debt, external debt managers are very interested t re paid compared to revenues directly and indirectly to repay commonly used to assess n of strategic planning for the national debt Scale and repayment of debt, interest va considered as a base for referencing the national debt, debt to determine the status because it relates not only to the economic situation, but also the ability to pay debts related to attract financial resources from outside to serve the objectives of macro t to state ng hi The indicators of external debt are built into the system to determine the ep severity of the foreign debt to finance national security Also need to redefine the criteria to assess the overall external debt, namely assessment of the level of debt, w n thereby implicitly said repayment capacity of each country in medium and long lo ad term There are many indictors for external debt Generally speaking, the y th developing countries often appreciate the value of the domestic currency or use the ju yi multi-rate regime leading to reduce the severity of the debt Therefore, the debt pl situation cannot be underestimated and choosing the appropriate criteria to assess al n ua the level of external debt as well as the the repayment capacity of the country in the va medium and long term is very important n The criteria which is used popularly in many empirical research is the ratio fu ll between total external debt and total exports of goods and services This indicator m oi can demonstrate the performing external debt including private debt, government nh at debt underwritten by the exports of goods and services The idea of using this z indicator is to reflect commodity export revenues and services means that a country z ht vb can use to pay external debt This indicator in the East Asia Pacific showed jm decreasing ability to repay debts in export income is difficult, need to have other k sources of income to offset with the following simple formula: gm Criteria = (Total external debt / Total export turn over in goods and l.c services) om Another indicator which cannot be apart from the above one is total external an Lu debt service This indicator is the sum of principal repayments and interest actually 59 ey full-sided look on external debt in the relationship with economic growth t re in World Development Indicator) Both indicators can combine each other to give a n debt, and repayments (repurchases and charges) to the IMF (World bank definition va paid in currency, goods, or services on long-term debt, interest paid on short-term DETAILED POLICIES ON EXTERNAL DEBT ISSUE t to Policies on improving the efficiency in using external debt ng hi 1.1 ep Tightening the management of external debt from government External debt is rising rapidly in many developing countries mainly due to the weak debt management from the approriate authourities, especially the w n government Government has the most powerful tool to control the whole flow of lo ad external debt including the regulation, fiscal plan and other tools Strict control of ju y th external debt, especially short-term loans limit is very important to developing countries in the complicated context of globalization interogation nowadays It yi pl should be emphasized that one of the causes of the 1997 financial crisis mainly in al ua Asian countries like Thailand, Indonesia, Singapore, Korean….as well as the global n economic crisis in 2008 which has been confirmed by many developing countries is va n due to the lack of management from government and the other authorities To fu ll manage the external debt source better, government should control it on the m oi principle of priority and identify the specific using objectives based on its necessity nh External debt with preferential source will be a better choice for developing at z countries than the one with high commercial interest rate Accordingly, commercial z ht vb loans of Government should only use for the purpose of lending for key jm development programs or projects with utmost needs Besides, the using of ODA is k also considered more carefully and tightly in order to avoid the excessive low gm interest debt which can easily leads to debt crisis in public sector and leave the l.c heavy debt burden on nest generation of one country In particular, the developing om countries including Vietnam should resolutely refuse ODA loans if the project is an Lu estimated ineffective or inefficient because of many binding factors and clauses 60 ey Government’s Decree on Government bonds issued to international capital markets t re provincial government, central cities, or public enterprises Building the n sector debt, including loans and repayment of foreign and domestic from the va Furthermore, Government should build a sound regulation system for managing can help to control the condition Then, planning the medium-temporary program and warning system for debt risk in form of montly or quarterly reports to provide t to the most adequate information of debt condition to all the participant objects in debt ng hi cycle In addition to management, the inspection for the use of external debt loans ep should also be enhanced Each country’s Government should conduct an audit requirements mandatory for all projects implemented by borrowing funds to ensure w n that the external debt will be used for the right purpose with the highest lo ad effectiveness Depending on a specific types of external debt, the further details can y th be discussed as follows: ju yi pl 1.1.1 Loans from official development assistance (ODA) ua al Making use of ODA must be in accordance with the investment demand for n development and absorptive capacity of the economy in general and of each sector, va n in particular localities ODA should be a priority focus on investment in industries fu ll and specific areas to suit the requirement for each development period For the m oi construction project infrastructure unconditional withdrawal of funds directly, the at nh use of which should be based on economic efficiency for the society Setting the z orientation for using ODA is of great important to increase the efficiency and limit z the loss as well as the potential risk for debt crisis To attract ODA for development vb jm ht goal at a reasonable level requires the good correspondences between the capital usage and distribution k gm l.c 1.1.2 Loans from foreign government – Public external debt om This external debt which comes from Governments should only be applied in an Lu the exceptional or urgent cases and when they cannot immediately mobilized an amount of capital from other sources effectively Government should prepare the n va necessary conditions and issue government bonds abroad to gradually penetrate the restructuring debt, convertible debt, buy back debt, debt swap, in order to ensure 61 ey development Researching and applying the management solutions suitable as t re international financial markets and raise additional capital for investment and reasonable structure and reduce debt obligations from the external debt of the Government t to ng 1.1.3 External debt from the enterprise – Commercial external debt hi ep This external debt has a competitive interest rate on the financial market Thus, a close monitoring of using the debt and servicing it from the corporate sector, w n especially state enterprise loans short term loans is a necessary step to ensure a good lo ad dent management Instead of borrowing the capital from foreign source, promotion y th for domestic capital rise such as indirect issuing the shares or bonds from corporate ju enterprises to sell for foreign investors with target of gaining the additional capital yi pl investment As a result, the external debt reduces in total while the domestic capital Building the stategy for borrowing and repaying external debt n va n ua al can be ensured at the same time ll fu Each country should plan a strategy for dealing with external debt problem oi m including the borrowing and repaying scheme This strategy will play a role as an nh orientation tool to adjust the economic deviation to help one country to achieve its at goal for economic development Understanding that both external debt to export z z turn over and total debt service are negative correlated with GDP growth of one vb ht country, the importance of planning a strategy for borrowing and repaying debt is k jm more emphasized A typical strategy for external debt and debt service should focus gm on main points including the requirement on management and repayment of l.c external debt; then the legal framework and institutional management of external om debt; and the collection, aggregation, reports, shares, published information as well an Lu as training on the management of external debt Government should exploit its active central role in defining each specific job; assigning the Ministries and n va Agencies such as the Ministry of Planning and Investment, Ministry of Finance…to ey t re serve the process of building a strategic plan 62 Policies on downsizing external debt and the others One of the best ways to deal with the external debt is to stop borrowing the t to ng capital from foreign sources However this solution is hard to carry out because all hi developing countries are always in the regular shortage of capital Thus, the loan to ep invest in developing and small parts to consumers is inevitable in poor countries is w growing as our country, but it is important to restrict the lending for the capability n lo of repayment (the principal and interest) by maturity and avoidance of debt burden ad as well as dent crisis Therefore, these countries can reduce the level of debt and y th apply the innovation as well as the improvement of policies and mechanisms to ju yi manage the external debt on the basis of complete construction process and appraise pl projects using foreign loans The relevant Ministries in the process of issuing al n ua documents and policies related to external debt issues should ensure consistency n va with the principles of the current legislation on the management of foreign fu borrowing and repayment Then, organizing the structure of external debt in the ll ministries, branches and localities, including clearly defining the functions, tasks, oi m powers and strengthen coordination mechanisms in research for development, nh at strategic planning and executive management policies of external debt Firstly, to z strengthen debt management apparatus in the integrated management, the agencies z ht vb such as the Ministry of Finance, Ministry of Planning and Investment and the State jm Bank of one developing country, should have analyzed and prepared a planned k scheme for the approriate level of loan soon Secondly, training and re-training to gm l.c enhance the professional qualifications of the staff on external debt management need the cooperation from both state management and personnel management to om meet the immediate needs and long term goal Besides, organizing the information an Lu networks on external debt smoothly from central to local units are very important 63 ey implementation efficiently without getting stuck in the unnecessary external debt t re in the country can be mde used of to maximize the potential of total investment n capital resources instead of loans The capital mobilization of all economic sectors va Another policy on dealing with external debt is to try to develop internal Besides, to developing countries, export oreientaion is one of the most important policies which should be implemented quickly due to the direct relationship with t to external debt’s repayment capability This policy can be carried out by accelerating ng hi the export and importing only essential equipment, materials, fuel and supplies to ep ensure that domestic production cannot be produced or produced ineffectively (using comparative advantage), then limiting the imports of consuming goods to w n narrow the gap between export and import Then, in the future, the indicators for lo ad evaluating debt as the ratio of external debt to export can be downsized and have a y th better value ju yi In addition to, the politic stability should also be taken into account to create pl a favourable environment for policy implementation Anti-corruption is also a point al n ua to get not only in the project, the work that foreign loans from other sources If there va is the corruption, the favourable external debt source which are necessary for the n development like ODA will be limited or even if the ODA is received, its fu ll disbursement will be in trouble or get the hiatus Finally, promoting the foreign m oi direct investment (FDI) instead of getting the foreign loans like ODA is not only nh at long-term orientation in the developing countries, but also developed countries as z well nowadays To this policy, developing countries should prepare the z ht vb supporting documents from the Law, to the Decree, to create an attractive market k jm for FDI, such as the Law on Investment effected from 1/7/ 2006 in Vietnam om l.c gm an Lu n va ey t re 64 TABLE 1: OLS RESULT t to ng hi ep regress loggdp logexternaldebt realgdp investment inflation schooling openess expenditure savings totaldebtservice populationgr > owth Source SS df MS w Number of obs = F( 10, 108) = Prob > F = R-squared = Adj R-squared = Root MSE = n lo Model Residual ad 197.158517 10 19.7158517 23.7387954 108 219803661 y th Total 220.897313 118 1.87201112 119 89.70 0.0000 0.8925 0.8826 46883 ju yi pl Coef Std Err P>|t| [95% Conf Interval] 0.178 0.000 0.000 0.029 0.007 0.000 0.135 0.000 0.835 0.010 0.000 -.0628263 6042631 0528244 -.001871 -.0253008 -.0308162 -.0091446 0249805 -.0055448 -.8777572 11.81643 al t ua loggdp fu ll oi m 334126 8871948 0961996 -.0001039 -.0041631 -.0172849 0669829 0586165 0068494 -.1196661 22.99563 at nh z z k jm ht vb 1.35 10.45 6.81 -2.22 -2.76 -7.05 1.51 4.93 0.21 -2.61 6.17 n 1001305 071369 0109413 0004458 005332 0034132 019203 0084846 0031264 1912272 2.819933 va 1356499 7457289 074512 -.0009874 -.014732 -.0240506 0289191 0417985 0006523 -.4987116 17.40603 n logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h _cons om l.c gm an Lu n va ey t re 65 TABLE 2: OLS RESULT WITH DUMMY VARIABLE t to ng regress loggdp logexternaldebt realgdp investment inflation schooling openess expenditure savings totaldebtservice populationgro > wth dummy_brazil dummy_mexico dummy_southafica dummy_nigeria dummy_india hi ep Source SS df MS w Number of obs = F( 15, 103) = Prob > F = R-squared = Adj R-squared = Root MSE = n Model 217.45596 15 14.497064 Residual 3.44135241 103 033411188 lo ad ju y th Total 220.897313 118 1.87201112 119 433.90 0.0000 0.9844 0.9822 18279 yi Coef Std Err t P>|t| n ll fu -.2346255 5952252 0125595 -.0012014 0054759 -.0057278 -.0306602 -.0003668 -.0083149 -.5361087 1.37754 69308 -.3489815 1.192959 2.722722 19.77308 m -.0484809 8784959 033299 -.0003547 017713 0026292 0161292 0151843 -.0017331 -.158908 2.747312 1.92833 7950793 1.854034 3.495027 25.0293 at nh z z k jm ht vb om l.c gm 0.003 0.000 0.000 0.000 0.000 0.464 0.539 0.062 0.003 0.000 0.000 0.000 0.441 0.000 0.000 0.000 oi -3.02 10.32 4.39 -3.65 3.76 -0.74 -0.62 1.89 -3.03 -3.65 5.97 4.21 0.77 9.14 15.97 16.90 [95% Conf Interval] va 0469288 0714153 0052286 0002135 0030851 0021069 0117961 0039206 0016594 0950959 3453327 3114184 2884287 1666632 1947053 1.325142 n -.1415532 7368605 0229293 -.000778 0115944 -.0015493 -.0072655 0074087 -.005024 -.3475083 2.062426 1.310705 2230489 1.523497 3.108875 22.40119 ua al logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h dummy_brazil dummy_mexico dummy_sout~a dummy_nige~a dummy_india _cons pl loggdp an Lu n va ey t re 66 TABLE 3: FIXED-EFFECTS MODEL RESULT t to ng xtreg loggdp logexternaldebt realgdp investment inflation schooling openess expenditure savings totaldebtservice populationgrowth > , fe hi ep w Number of obs = Number of groups = 119 R-sq: within = 0.9228 between = 0.2951 overall = 0.4180 Obs per group: = avg = max = 19 19.8 20 n Fixed-effects (within) regression Group variable: country lo ad ju y th yi F(10,103) Prob > F pl corr(u_i, Xb) = -0.2189 = 123.16 = 0.0000 Coef Std Err n ll m -.2346255 5952252 0125595 -.0012014 0054759 -.0057278 -.0306602 -.0003668 -.0083149 -.5361087 20.9544 at nh -.0484809 8784959 033299 -.0003547 017713 0026292 0161292 0151843 -.0017331 -.158908 26.56163 z z k gm om l.c Prob > F = 0.0000 an Lu F(5, 103) = 121.50 jm sigma_u 1.1595344 sigma_e 18278728 rho 97575265 (fraction of variance due to u_i) F test that all u_i=0: ht vb 0.003 0.000 0.000 0.000 0.000 0.464 0.539 0.062 0.003 0.000 0.000 [95% Conf Interval] oi -3.02 10.32 4.39 -3.65 3.76 -0.74 -0.62 1.89 -3.03 -3.65 16.81 fu 0469288 0714153 0052286 0002135 0030851 0021069 0117961 0039206 0016594 0950959 1.413636 n -.1415532 7368605 0229293 -.000778 0115944 -.0015493 -.0072655 0074087 -.005024 -.3475083 23.75801 t P>|t| va logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h _cons ua al loggdp n va ey t re 67 TABLE 4: RANDOM-EFFECTS MODEL RESULT t to ng xtreg loggdp logexternaldebt realgdp investment inflation schooling openess expenditure savings totaldebtservice populationgro > wth , re hi ep Random-effects GLS regression Group variable: country 119 Obs per group: = avg = max = 19 19.8 20 w Number of obs = Number of groups = n lo R-sq: within = 0.5748 between = 0.9791 overall = 0.8925 ad ju y th Wald chi2(10) Prob > chi2 yi Random effects u_i ~ Gaussian corr(u_i, X) = (assumed) pl = 896.98 = 0.0000 n ua al Coef Std Err z P>|z| [95% Conf Interval] n va loggdp ll fu logexterna~t 1356499 1001305 1.35 0.176 -.0606024 3319021 realgdp 7457289 071369 10.45 0.000 6058482 8856097 investment 074512 0109413 6.81 0.000 0530674 0959566 inflation -.0009874 0004458 -2.22 0.027 -.0018611 -.0001138 schooling -.014732 005332 -2.76 0.006 -.0251824 -.0042815 openess -.0240506 0034132 -7.05 0.000 -.0307404 -.0173607 expenditure 0289191 019203 1.51 0.132 -.0087181 0665564 savings 0417985 0084846 4.93 0.000 0251689 0584281 totaldebts~e 0006523 0031264 0.21 0.835 -.0054753 00678 population~h -.4987116 1912272 -2.61 0.009 -.8735101 -.1239132 _cons 17.40603 2.819933 6.17 0.000 11.87906 22.933 oi m at nh z z k jm ht vb om l.c gm an Lu sigma_u sigma_e 18278728 rho (fraction of variance due to u_i) n va ey t re 68 TABLE 5: HAUSMAN TEST t to hausman fixed random ng hi Coefficients (b) (B) fixed random ep w (b-B) sqrt(diag(V_b-V_B)) Difference S.E n lo ad ju y th yi pl al n n va fu -.2772031 -.0088684 -.0515828 0002094 0263264 0225013 -.0361846 -.0343898 -.0056763 1512033 oi m 0025687 at nh 1356499 7457289 074512 -.0009874 -.014732 -.0240506 0289191 0417985 0006523 -.4987116 ll -.1415532 7368605 0229293 -.000778 0115944 -.0015493 -.0072655 0074087 -.005024 -.3475083 ua logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h z b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg z k om l.c gm an Lu chi2(10) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 2875.82 Prob>chi2 = 0.0000 jm ht vb Test: Ho: difference in coefficients not systematic n va ey t re 69 TABLE 6: FIXED-EFFECTS MODEL RESULT FOR EQUATION t to ng xtreg loggdp externaldebttoexport totaldebtservice investment inflation schooling populationgrowth openess expenditure savings E > xternalDebt_Squared , fe hi ep w Number of obs = Number of groups = 118 R-sq: within = 0.8375 between = 0.0005 overall = 0.0745 Obs per group: = avg = max = 19 19.7 20 n Fixed-effects (within) regression Group variable: country lo ad y th F(10,102) Prob > F ju corr(u_i, Xb) = -0.2939 = = 52.56 0.0000 yi t P>|t| [95% Conf Interval] -4.77 -0.47 4.52 -1.22 3.79 -2.68 2.40 1.28 3.42 3.64 54.30 0.000 0.638 0.000 0.225 0.000 0.009 0.018 0.204 0.001 0.000 0.000 -.0041328 -.0017049 -.0062281 0038322 0180019 0461614 -.002834 0006744 007781 0248707 -.5023267 -.0751059 0011608 0121811 -.0124164 0573916 0076345 0287797 1.56e-06 5.29e-06 23.25757 25.02118 n va fu ll oi m at nh z z 000612 002536 0070984 0008844 004308 1076939 002778 0175972 0053303 9.40e-07 4445699 n -.0029189 -.0011979 0320816 -.0010798 0163259 -.2887163 0066709 0224876 0182071 3.43e-06 24.13937 ua k jm ht 1.4508122 26121693 96860035 (fraction of variance due to u_i) vb sigma_u sigma_e rho Coef Std Err al externalde~t totaldebts~e investment inflation schooling population~h openess expenditure savings ExternalDe~d _cons pl loggdp F(5, 102) = 87.59 Prob > F = 0.0000 om l.c gm F test that all u_i=0: an Lu n va ey t re 70 TEST t to TABLE 7: TESTING FOR MULTICOLLINEARITY ng hi ep w cor loggdp logexternaldebt realgdp investment inflation schooling openess expenditure savings totaldebtservice populationgrowth (obs=119) n lo loggdp logext~t realgdp invest~t inflat~n school~g openess expend~e savings totald~e popula~h ad ju yi 1.0000 0.5055 -0.0517 0.0688 0.4167 -0.5260 0.4050 -0.0810 0.5759 -0.5496 pl ua al 1.0000 -0.2579 0.0626 0.8125 -0.2622 0.6594 -0.2591 0.3133 -0.3752 n 1.0000 -0.0995 1.0000 -0.0316 0.0189 1.0000 0.6096 -0.1656 0.0338 1.0000 -0.6195 0.1878 0.5831 -0.5652 1.0000 0.6101 -0.0446 -0.0795 0.3652 -0.4417 1.0000 -0.3572 0.0309 0.1652 -0.5418 0.4379 -0.2918 1.0000 -0.3651 -0.0048 -0.6306 -0.2338 -0.1682 -0.2783 -0.1403 1.0000 n va 1.0000 0.7699 0.7008 0.0053 0.0403 0.5194 -0.5022 0.4833 0.0771 0.4257 -0.4544 y th loggdp logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h ll fu vif k jm ht Mean VIF = 2.6 No multicollinearity exists om l.c gm 4.22 vb Mean VIF z 0.148768 0.157052 0.160956 0.194178 0.195765 0.221721 0.298443 0.538441 0.551073 0.931402 z 6.72 6.37 6.21 5.15 5.11 4.51 3.35 1.86 1.81 1.07 at schooling openess logexterna~t expenditure population~h realgdp investment totaldebts~e savings inflation nh 1/VIF oi VIF m Variable an Lu n va ey t re 71 TABLE 8: TESTING FOR HETEROSKEDASTICITY t to ng hi ep w Number of obs = Number of groups = 119 R-sq: within = 0.9228 between = 0.2951 overall = 0.4180 Obs per group: = avg = max = 19 19.8 20 corr(u_i, Xb) = -0.2189 F(10,103) Prob > F n Fixed-effects (within) regression Group variable: country = = 123.16 0.0000 lo ad y th loggdp yi pl 0469288 0714153 0052286 0002135 0030851 0021069 0117961 0039206 0016594 0950959 1.413636 t n ua al -3.02 10.32 4.39 -3.65 3.76 -0.74 -0.62 1.89 -3.03 -3.65 16.81 n va P>|t| [95% Conf Interval] 0.003 0.000 0.000 0.000 0.000 0.464 0.539 0.062 0.003 0.000 0.000 -.2346255 -.0484809 5952252 8784959 0125595 033299 -.0012014 -.0003547 0054759 017713 -.0057278 0026292 -.0306602 0161292 -.0003668 0151843 -.0083149 -.0017331 -.5361087 -.158908 20.9544 26.56163 ll fu -.1415532 7368605 0229293 -.000778 0115944 -.0015493 -.0072655 0074087 -.005024 -.3475083 23.75801 ju logexterna~t realgdp investment inflation schooling openess expenditure savings totaldebts~e population~h _cons Coef Std Err m 1.1595344 18278728 97575265 (fraction of variance due to u_i) oi F(5, 103) = 121.50 Prob > F = 0.0000 z F test that all u_i=0: at nh sigma_u sigma_e rho z vb xttest3 k jm ht Modified Wald test for groupwise heteroskedasticity in fixed effect regression model 16.30 0.0122 om l.c chi2 (6) = Prob>chi2 = gm H0: sigma(i)^2 = sigma^2 for all i an Lu Prob>chi2 = 0.00122 => There is no heteroskedascity Therefore the data is fit n va and the model is correct ey t re 72