The Share of External Debt and Economic Growth

In this paper we examine the effects of the share of external public debt on a country's economic growth. These effects are examined through a competitive, decentralized model of endogenous economic growth, which relies on public investments. As the internal-external public debt ratio increases, the public to private capital ratio increases which in turn positively affects the long run economic growth rate. The main conclusion of the paper is that the outflow of domestic capital which is needed to service external debt has unfavorable repercussions on an economy's balanced growth path.