Can Emerging Countries Mitigate the Effect of Original Sin Problem in Achieving External Debt Sustainability?

• Autorzy: Sevcan Güneş , Tuğba Akin
• Języki publikacji: EN

Abstrakty

EN

Due to the spike in inflation, the implementation of easy monetary and fiscal policies since the pandemic appears to be coming to an end. The shift towards tighter policies raises concerns about debt sustainability in developing countries, particularly due to the challenge of the "original sin" problem. Given these premises, to analyze debt sustainability for emerging countries, this study focuses on foreign exchange revenue capability and employs external debt-creating (imports, reserves and interest payments) and reducing variables (exports, reserve return and net transfers) for 1995-2020. The results of this panel cointegration estimation for 15 EMDE countries are 0.74 and 0.70 for CCEMG and AMG estimators respectively which indicates moderate sustainability as whole sample countries. However, the individual estimators vary widely for each individual country from weak to strong sustainability. (original abstract)

Słowa kluczowe

EN

Debt; Sustainable development; Cointegration; Emerging markets

PL

Dług; Rozwój zrównoważony; Kointegracja; Rynki wschodzące

• Czasopismo: Central European Journal of Economic Modelling and Econometrics (CEJEME)
• Rocznik: 2023
• Tom: 15
• Numer: nr 3
• Strony: 267--285

Twórcy

autor

Sevcan Güneş

• Pamukkale University, Turkey

autor

Tuğba Akin

• Aydin Adnan Menderes University, Turkey

Bibliografia

• [1] Baharumshah A. Z., Lau E., Fountas S., (2003), On the sustainability of current account deficits: evidence from four ASEAN countries, Journal of Asian Economics 14(3), 465-487.
• [2] Baldacci E., Gupta S., Mulas-Granados C., (2010), Restoring debt sustainability after crises: Implications for the fiscal mix, International Monetary Fund, IMF Working Papers, No 232, available at https://doi.org/10.5089/ 9781455209323.001.
• [3] Blanchard 0.,(2019), Public Debt and Low Interest Rates, American Economic Review 109 (4), 1197-1229.
• [4] Blomquist J., Westerlund J., (2013), Testing slope homogeneity in large panels with serial correlation, Economics Letters 121(3), 374-378.
• [5] Breitung J., Samarjit D., (2005), Panel unit root tests under cross-sectional dependence, Statistica Neerlandica 59(4), 414-433.
• [6] Breitung J., (2000), The local power of some unit root tests for panel data, [in:] Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Advances in Econometrics, [ed.:] B. H. Baltagi, vol. 15, 161-178.
• [7] Breusch T. S., Pagan A. R., (1980), The lagrange multiplier test and its applications to model specification in econometrics, The Review of Economic Studies 47(1), 239-253.
• [8] De Blander R., Dhaene G., (2012), Unit root tests for panel data with AR (1) errors and small T, The Econometrics Journal 15(1), 101-124.
• [9] Devlin R., (1990), Debt and crisis in Latin America: The supply side of the story, Princeton University Press, Princeton, NJ.
• [10] Diamond D. W., He Z., (2012), A theory of debt maturity: The long and short of debt overhang, NBER Working Paper, No. 18160.
• [11] Eberhardt M., Bond S., (2009), Cross-section dependence in nonstationary panel models: a novel estimator, MPRA Paper No. 17692, 07 Oct., available at https: //mpra.ub.uni-muenchen.de/17692/.
• [12] Eberhardt M., Teal F., (2010), Productivity analysis in global manufacturing production, Economics Series Working Papers 515, University of Oxford, Department of Economics.
• [13] ECI, (2019), Atlas of Economic Complexity Economic Complexity Rankings, available at https://atlas.cid.harvard.edu/rankings.
• [14] Eichengreen B., Hausmann R., (1999), Exchange rates and financial fragility, In New Challenges for Monetary Policy, Proceedings of a symposium sponsored by the Federal Reserve Bank of Kansas City.
• [15] Eichengreen B., Hausmann R., Panizza U., (2005), The pain of original sin, [in:] Other people's money: Debt denomination and financial instability in emerging market economies, [eds.:] B. Eichengreen, R. Hausmann, 13-47.
• [16] Eichengreen B., Hausmann R., Panizza U., (2007), Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters. Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, University of Chicago Press, 121-170.
• [17] Gapen M., Dale G., Lim C. H., Xiao Y., (2008), Measuring and analyzing sovereign risk with contingent claims, IMF Staff Papers 55, 109-148, doi:10.1057/palgrave.imfsp.9450026.
• [18] Gengenbach C., Urbain J. P., Westerlund J., (2016), Error correction testing in panels with common stochastic trends, Journal of Applied Econometrics 31(6), 982-1004.
• [19] Goldstein M.,(2003), Debt Sustainability, Brazil, and the IMF, Working Paper Series WP03-1, Peterson Institute for International Economics.
• [20] Hakkio C., Rush M., (1991), Is the budget deficit too large?, Economic Inquiry 29, 429-445.
• [21] Hamilton J. D., Flavin M., (1986), On the limitations of government borrowing: A framework for empirical testing, American Economic Review 76, 809-819.
• [22] Harris R. D. F., Tzavalis E., (1999), Inference for unit roots in dynamic panels where the time dimension is fixed, Journal of Econometrics, 91(2), 201-226.
• [23] Hausmann R., Panizza U., (2003), On the determinants of Original Sin: An empirical investigation, Journal of International Money and Finance 22 (7), 957, doi: 10.1016/j.jimonfin.2003.09.006.
• [24] Hostland D., Karam P., (2006), Assessing debt sustainability in emerging market economies using stochastic simulation methods, World Bank Policy Research Working Paper, 3821, 1-34.
• [25] IMF, (2015), As of October, available at http://www.imf.org/external/pubs/ ft/weo/2015/02/pdf/text.pdf.
• [26] Kassouri Y., Altintas H., (2020), Human well-being versus ecological footprint in MENA countries: a trade-off?, Journal of Environmental Management 263, 110405.
• [27] Köse M. A., Nagle P., Ohnsorge F., Sugawara N., (2021), Global waves of debt: Causes and consequences, Washington, DC, World Bank, doi:10.1596/978-1-4648-1544-7, License: Creative Commons Attribution CC BY 3.0 IGO.
• [28] Kraay A., Nehru V., (2006), When is external debt sustainable?, Oxford University Press on behalf of the World Bank, World Bank, available at https: //openknowledge.worldbank.org/handle/10986/16425
• [29] IMF, (International Monetary Fund), (2021), World Economic Outlook: Managing Divergent Recoveries, Washington, DC, April.
• [30] Manasse P., Roubini N., Schimmelpfenning A., (2003), Predicting sovereign debt crises, IMF Working Paper No. 03/221.
• [31] Manasse P., Roubini N., (2009), "Rules of thumb" for sovereign debt crises, Journal of International Economics 78, 192-205.
• [32] Mehrotra N. R., Sergeyev D., (2021), Debt Sustanibility in a low interest rate world, Journal of Monetary Economics 124(S), 1-18.
• [33] Önel G., Utkulu U., (2006), Modeling the long-run sustainability of Turkish external debt with structural changes, Economic Modelling 23, 669-682, available at http://dx.doi.Org/10.1016/j.econmod.2006.03.006.
• [34] Pattillo C., Poirson H., Ricci L., (2002), External debt and growth, IMF Working Paper, 1-49.
• [35] Pesaran M. H., (2004), General diagnostic tests for cross section dependence in panels, CESifo Working Papers, No.1233, 255-60.
• [36] Pesaran M. H., (2006), Estimation and inference in large heterogeneous panels with a multifactor error structure, Econometrica 74(4), 967-1012.
• [37] Pesaran M. H., Ullah A., Yamagata T., (2008), A bias-adjusted LM test of error cross-section independence, The Econometrics Journal 11(1), 105-127.
• [38] Reinhart C. M., Rogoff K. S., (2010), Growth in a time of debt, American Economic Review 100(2), 573-578.
• [39] Sawada Y., (1994), Are the heavily indebted countries solvent?: Tests of intertemporal borrowing constraints, Journal of Development Economics 45, 325-337.
• [40] Saadaoui J., Keung Lau M. C., Cai Y., (2022), Assessing Debt Stationarity and Sustainability in the Longer-Run with Fourier DF Unit Root Tests and Time-Varying Fiscal Reaction Functions, Working Papers 2022.07, International Network for Economic Research - INFER.
• [41] Quintos C. E., (1995), Sustainability of the deficit process with structural shifts, Journal of Business and Economic Statistics 13(4), 409-417.
• [42] Todaro M. P., Smith S. C., (2011), Economic Development, 11th Edition, Pearson Education and Addison-Wesley.
• [43] Uctum M., Thurston T., Uctum R., (2006), Public Debt, the Unit Root Hypothesis and Structural Breaks: A Multi-Country Analysis, Economica 73, 129-156.
• [44] World Bank, (2021), Global economic prospects, June 2021, Washington, DC, doi:10.1596/978-1-4648-1665-9, Attribution CC BY 3.0 IGO.

Identyfikatory

DOI

10.24425/cejeme.2023.147911