Impact of Fiscal Policy on Economic Growth under the Contributions of Level of External Debt in Developing Countries
Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 32799
Impact of Fiscal Policy on Economic Growth under the Contributions of Level of External Debt in Developing Countries

Authors: Zohreh Bang Tavakoli, Shuktika Chatterjee


This study investigates the fiscal policy impact on countries’ economic growth in developing countries with a different external debt level. The fiscal policy effectiveness has been re-emphasized in the global financial crisis of 2008 with the external debt as its new contemporary driver. Different theories have proposed the economic consequence of fiscal policy, specifically for developing countries. However, fiscal policy literature is lacking research regarding the fiscal policy’s effectiveness with the external debt’s contributions through comprehensive study. Also, high levels of external debt will influence economic growth. Through foreign resources and channel of investment in which high level of debt decreases the amount of foreign investment in the developing countries. The finding of this study suggests that only countries with a low external debt level and appropriate fiscal policies and good quality institutions can gain the proper quantity and quality of foreign investors in which will help the economic growth. For this, this research is examining the impact of fiscal policy on developing countries' economic growth in the situation of different external debt levels.

Keywords: fiscal policy, external debt, gross domestic product, developing countries

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 405


[1] Alexander, N. (2010). The country policy and institutional assessment (CPIA) and allocation of IDA resources: suggestions for improvements to benefit African countries. Washington: The Heinrich Böll Foundation.
[2] Alesina, A., Tabellini, G., Campante, F., (2008). Why is fiscal policy procyclical? Journal of European Economic Association 6 (5), 1006–1036.
[3] Amato, A. and Tronzano, M. (2000), “Fiscal policy, debt management and exchange rate credibility: lessons from the recent Italian experience”, Journal of Banking & Finance, Vol. 24 No. 6, pp. 921-943, available at:–4266(99)00112–0
[4] Afonso, A., & Sousa, R. M. (2012). The macroeconomic effects of fiscal policy. Applied Economics, 44(34), 4439-4454.
[5] Bi, H., Shen, W., & Yang, S. C. (2013). Fiscal Limits, External Debt, and Fiscal Policy in Developing Countries. International Economic Analysis Department. Ottawa, Canada: Bank of Canada.
[6] Bouakez, H., Chihi, F. and Normandin, M. (2014), “Measuring the effects of fiscal policy”, Journal of Economic Dynamics and Control, Vol. 47, pp. 123-151, available at: jedc.2014.08.004
[7] Cordella, T., Ricci, L. A., and Ruiz-Arranz, M. (2010). External Debt Overhang of External Debt Irrelevance? IMF Staff Paper, 57, 1-24.
[8] Canh, N. P. (2018). The effectiveness of fiscal policy: contributions from institutions and external debts. Journal of Asian Business and Economic Studies.
[9] Coddington, A. (1976), “Keynesian economics: the search for first principles”, Journal of Economic Literature, Vol. 14 No. 4, pp. 1258-1273.
[10] De Castro, F., & de Cos, P. H. (2008). The economic effects of fiscal policy: the case of Spain. Journal of Macroeconomics, 30(3), 1005-1028.
[11] Dey, S. R., & Tareque, M. (2020). External debt and growth: role of stable macroeconomic policies. Journal of Economics, Finance and Administrative Science.
[12] Easterly, W. (2002), “How did heavily indebted poor countries become heavily indebted? Reviewing two decades of debt relief”, World Development, Vol. 30 No. 10, pp. 1677-1696, available at: https:// doi. org/10.1016/S0305-750X (02)00073-6.
[13] Fleming, J. M. (1962), “Domestic financial policies under fixed and under floating exchange rates”, Staff Papers, Vol. 9 No. 3, pp. 369-380.
[14] Gallup, J. L., Radelet, S. and Warner, A. (1998), Economic Growth and the Income of the Poor, Manuscript, Harvard Institute for International Development.
[15] Imbs, J., and Ranciere, R. (2005). The Overhang Hangover, World Bank Policy Research Working Paper No. 3673.
[16] Kharusi, S. A., & Ada, M. S. (2018). External debt and economic growth: The case of emerging economy. Journal of economic integration, 33(1), 1141-1157.
[17] Mensah, L., Bokpin, G., & Boachie-Yiadom, E. (2018). External debts, institutions and growth in SSA. Journal of African Business, 19(4), 475-490.
[18] Ramzan, M., and Ahmad, E. (2014). External Debt Growth Nexus: Role of Macroeconomic Policies. Economic Modelling, 38, 204-210.
[19] Sachs, J. D. (2003) "Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income," Cambridge, MA: National Bureau of Economic Research Working Paper No. 9490.
[20] Griffin, K. B., & Enos, J. L. (1970). Foreign assistance: objectives and consequences. Economic development and cultural change, 18(3), 313-327.
[21] Adam, C. S., & Bevan, D. L. (2005). Fiscal deficits and growth in developing countries. Journal of public economics, 89(4), 571-597.
[22] Mensah, L., Bokpin, G., & Boachie-Yiadom, E. (2018). External debts, institutions and growth in SSA. Journal of African Business, 19(4), 475-490.
[23] Cohen, T. F. (1993). What do fathers provide? Reconsidering the economic and nurturant dimensions of men as parents.
[24] Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt. American economic review, 100(2), 573-78.
[25] Arslanalp, S., & Henry, P. B. (2006). Policy watch: debt relief. Journal of Economic Perspectives, 20(1), 207-220.