The effect of foreign debt on the economic growth

Kurniasih, Erni Panca (2021) The effect of foreign debt on the economic growth. Jurnal Ekonomi Malaysia, 55 (3). pp. 125-136. ISSN 0127-1962


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This study examines the effect of foreign debt on the economic growth. Using a time series Indonesian data over 1981 - 2017, we employ the Error Correction Model based on the debt overhang theory. Foreign debt was found to produce negative and significant effect on the economic growth both in the short- and long-run. The paper further found that Foreign Direct Investment (FDI) improves the economic growth. Foreign debt that continues to increase drastically in the long-run could slow down the economic growth which may indicate the economy experiencing a debt overhang. It is thus imperative for the government to ensure the debt ratio remain below a certain threshold. Further, foreign debt should be prioritized to develop infrastructure with a broad multiplier effect and the FDI likewise prioritized for labor-intensive sectors.

Item Type:Article
Keywords:Foreign debt; Foreign direct investment; Economic growth; Indonesia, Error correction model
Journal:Jurnal Ekonomi Malaysia
ID Code:18803
Deposited By: ms aida -
Deposited On:20 Jun 2022 06:35
Last Modified:23 Jun 2022 08:46

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