TAILIEUCHUNG - External Debt and Economic Growth Relationship Using the Simultaneous Equations

The analysis is limited to the post-World War II period. Using this period provides an adequate sample for the multivariate regression analysis that is used to examine correlation. The top statutory tax rates are examined because the current Congressional debate over the fate of the 2001 and 2003 Bush-era tax cuts focuses on the statutory tax rates affecting the highest income taxpayers. For an overview of the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic Growth, by Jane G. Gravelle and Donald J. Marples. . | Title External Debt and Economic Growth Relationship Using the Simultaneous Equations JEL Classification F34 C32 H63 List Of Keywords Turkey External Debt Economic Growth Simultaneous Equations ERDAL KARAGOL UNIVERSITY OF BALIKESIR E mail erdalkaragol@ ABSTRACT This study will examine the interaction among economic growth external debt service and capital inflow using time series data for Turkey and using a multi-equation results show that the relationship between debt service and economic growth should be analysed with a simultaneous equation model because there is a two-way relationship between debt service and growth. The rise in the debt-servicing ratio adversely affects economic growth whereas the decrease in the rate of growth reduces the ability of an economy to service its debt. When Turkey is servicing its debt debt servicing could impair economic growth. Servicing a heavy debt may exacerbate the debt problem. In order to service its debt Turkey had to borrow more. The higher the lagged debt stock the higher the debt service. This result is consistent with the Turkish experience which shows the existence of two way relationships between total debt stock and debt service. External Debt and Economic Growth Relationship Using the Simultaneous Equations The relationship between external debt economic growth and capital inflows can become complicated for several reasons. Firstly there is a relationship between external debt servicing and economic growth. Secondly government policies designed to influence the balance of payments domestic interest rates and employment may affect the stock of foreign debt and hence debt servicing and economic growth both directly and indirectly through their effects on exports domestic savings and foreign capital inflows. Thirdly there may be a two way relationship between debt stock and debt servicing. Finally long term capital inflows depending on its characteristics may also affect economic .

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