Abstract
Arguing that the litmus test of external debt sustainability should be based on total factor productivity growth instead of mere GDP growth, this study examines the effect of external debt on total factor productivity through technical efficiency change using the Stochastic Frontier Analysis method. To deepen the analysis, the dynamics of technical efficiency, public sector external debt and state ownership are also investigated in this study. The results show that external debt of the private sector increases total factor productivity by improving technical efficiency, whereas the contrary is true with regard to external debt of the public sector. Hence, between the public and private sectors, the latter shows greater efficiency in allocating and using external debt. Nonetheless, the negative impact of public sector external debt on technical efficiency can be mitigated by transferring state-owned assets to the private sector through privatization.
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Notes
Based on the World Development Indicators (WDI) statistics by the World Bank.
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Appendices
Appendix A: Description and sources of data
Variable | Definition | Description | Source |
|---|---|---|---|
\({y}_{it}\) | Log of real GDP | The logarithm of GDP measured in constant 2015 price in International Dollar | WDI |
\({k}_{it}\) | Log of capital stock | The logarithm of capital stock measured at constant 2017 price in International Dollar | PWT ver 10 |
\({l}_{it}\) | Log of labour force | The logarithm of labour force | WDI |
\({h}_{it}\) | Log of human capital index | The logarithm of human capital index (measured as years of schooling and returns to education) | PWT ver 10 |
\({trade}_{it}\) | Trade-to-GDP ratio | Sum of export volume and import volume as a percentage of GDP | WDI |
\({fdi}_{it}\) | FDI inflow-to-GDP ratio | Net FDI Inflow as a percentage of GDP | WDI |
\({regfree}_{it}\) | Regulation | A freedom index measuring regulatory freedom (range from 0 to 10) | EFW by Fraser Institute |
\({stateown}_{it}\) | State ownership of asset | A freedom index measuring state ownership of assets (range from 0 to 10) | EFW by Fraser Institute |
\({rule}_{it}\) | Rule of Law | A perception-based indicator measuring the extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence. | WGI |
\({goveff}_{it}\) | Government Effectiveness | A perception-based indicator capturing the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies | WGI |
\({creditpri}_{it}\) | Domestic credit to private sector (% of GDP) | A ratio measuring supply of domestic credit to the private sector as a percentage of GDP | WDI |
\({debtstkpub}_{it}\) | Public sector external debt stock (% of GDP) | A ratio measuring the stock of external debt incurred by the public sector as a percentage of GDP | Authors’ computation and IDS |
\({debtstkpri}_{it}\) | Private sector external debt stock (% of GDP) | A ratio measuring the stock of external debt incurred by the private sector as a percentage of GDP | Authors’ computation and IDS |
Appendix B: Descriptive statistics
Real GDP | Capital Stock | Labour Force | Human Capital | Trade | FDI Inflow | Regulatory Freedom | State Ownership | Rule of Law | Government Effectiveness | Domestic Credit to Private Sector | Public Sector External Debt Stock | Private Sector External Debt Stock | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
\({Y}_{it}\) | \({K}_{it}\), | \({L}_{it}\) | \({H}_{it}\) | \({trade}_{it}\) | \({fdi}_{it}\) | \({regfree}_{it}\) | \({stateown}_{it}\) | \({rule}_{it}\) | \({goveff}_{it}\) | \({creditpri}_{it}\) | \({debtstkpub}_{it}\) | \({debtstkpri}_{it}\) | ||
USD’bil | USD’bil | unit’ mil | avg yrs of schooling | % of GDP | % of GDP | score 0–10 | score 0–10 | score -2.5–2.5 | score -2.5–2.5 | % of GDP | % of GDP | % of GDP | ||
Argentina | Mean | 881.13 | 2,610.00 | 18.20 | 2.86 | 32.96 | 2.00 | 5.90 | 7.67 | -0.58 | -0.10 | 13.82 | 29.64 | 11.01 |
Std. Dev | 156.44 | 652.84 | 1.18 | 0.13 | 7.00 | 0.77 | 0.27 | 0.40 | 0.20 | 0.13 | 3.36 | 21.88 | 5.63 | |
Bangladesh | Mean | 527.29 | 1,307.76 | 57.40 | 1.86 | 36.59 | 0.88 | 6.53 | 6.85 | -0.83 | -0.74 | 35.13 | 19.95 | 1.16 |
Std. Dev | 186.98 | 778.59 | 6.43 | 0.15 | 6.97 | 0.44 | 0.35 | 0.33 | 0.12 | 0.07 | 7.26 | 6.90 | 0.48 | |
Brazil | Mean | 2,701.62 | 10,375.00 | 92.50 | 3.06 | 25.93 | 3.27 | 4.88 | 7.53 | -0.20 | -0.11 | 48.16 | 9.59 | 12.75 |
Std. Dev | 418.14 | 3,751.33 | 7.59 | 0.09 | 2.19 | 0.91 | 0.29 | 0.34 | 0.14 | 0.15 | 14.87 | 4.87 | 3.64 | |
Bulgaria | Mean | 127.67 | 290.31 | 3.37 | 2.51 | 109.68 | 8.36 | 7.59 | 7.71 | -0.09 | 0.10 | 48.06 | 21.05 | 35.74 |
Std. Dev | 22.60 | 125.91 | 0.06 | 0.33 | 20.20 | 7.85 | 0.43 | 0.33 | 0.04 | 0.10 | 18.59 | 15.14 | 19.71 | |
Cambodia | Mean | 40.69 | 101.08 | 7.64 | 2.48 | 124.84 | 8.93 | 6.76 | 7.78 | -1.10 | -0.82 | 39.39 | 36.22 | 10.33 |
Std. Dev | 16.54 | 53.04 | 1.09 | 0.12 | 10.06 | 4.26 | 0.39 | 0.05 | 0.10 | 0.13 | 35.00 | 11.30 | 4.84 | |
China | Mean | 12,020.37 | 50,500.00 | 775.00 | 2.38 | 47.62 | 3.08 | 5.69 | 4.19 | -0.45 | 0.13 | 128.81 | 3.02 | 2.70 |
Std. Dev | 5,863.31 | 28,201.34 | 21.20 | 0.14 | 9.45 | 1.03 | 0.62 | 0.15 | 0.11 | 0.21 | 19.50 | 1.98 | 0.70 | |
Colombia | Mean | 537.04 | 1,760.00 | 22.00 | 2.33 | 36.62 | 3.76 | 6.98 | 8.25 | -0.47 | -0.11 | 34.08 | 18.39 | 8.69 |
Std. Dev | 126.94 | 328.31 | 2.88 | 0.23 | 2.08 | 1.21 | 0.58 | 0.25 | 0.19 | 0.14 | 10.86 | 4.79 | 2.97 | |
Egypt | Mean | 814.53 | 1,126.27 | 25.60 | 2.32 | 47.73 | 2.93 | 5.02 | 5.05 | -0.28 | -0.50 | 38.82 | 22.93 | 0.17 |
Std. Dev | 199.82 | 495.56 | 3.43 | 0.07 | 11.21 | 2.67 | 0.29 | 1.27 | 0.25 | 0.20 | 11.94 | 8.49 | 0.23 | |
India | Mean | 5,351.40 | 19,740.00 | 450.00 | 1.96 | 42.67 | 1.63 | 6.51 | 7.18 | 0.04 | -0.03 | 44.65 | 8.40 | 7.93 |
Std. Dev | 2,052.51 | 9,808.44 | 23.50 | 0.12 | 9.13 | 0.72 | 0.23 | 0.28 | 0.11 | 0.13 | 8.52 | 3.68 | 2.23 | |
Indonesia | Mean | 2,042.05 | 8,910.00 | 114.00 | 2.57 | 51.79 | 1.27 | 6.16 | 7.24 | -0.60 | -0.22 | 27.50 | 22.59 | 12.39 |
Std. Dev | 635.17 | 5,829.95 | 11.90 | 0.01 | 9.97 | 1.51 | 0.53 | 0.45 | 0.19 | 0.20 | 4.61 | 9.29 | 4.30 | |
Jamaica | Mean | 27.13 | 119.87 | 1.29 | 3.19 | 87.88 | 5.15 | 7.59 | 7.71 | -0.34 | 0.20 | 27.84 | 54.69 | 16.02 |
Std. Dev | 1.07 | 47.07 | 0.10 | 0.07 | 8.86 | 2.06 | 0.51 | 0.66 | 0.08 | 0.17 | 8.72 | 7.12 | 12.53 | |
Kazakhstan | Mean | 329.00 | 904.65 | 8.51 | 2.15 | 79.09 | 7.48 | 7.71 | 5.82 | -0.75 | -0.40 | 32.44 | 8.29 | 65.12 |
Std. Dev | 104.00 | 142.78 | 0.58 | 0.13 | 16.12 | 4.14 | 0.19 | 0.40 | 0.26 | 0.30 | 12.50 | 5.78 | 13.80 | |
Kenya | Mean | 156.48 | 289.67 | 17.60 | 3.16 | 49.33 | 0.92 | 7.31 | 7.58 | -0.75 | -0.51 | 27.84 | 25.72 | 0.69 |
Std. Dev | 41.93 | 138.05 | 3.43 | 0.21 | 9.42 | 0.88 | 0.34 | 0.13 | 0.22 | 0.12 | 4.37 | 9.06 | 0.43 | |
Mexico | Mean | 2,087.65 | 7,460.00 | 47.40 | 2.88 | 61.60 | 2.77 | 6.82 | 7.39 | -0.49 | 0.16 | 19.10 | 16.38 | 6.00 |
Std. Dev | 263.41 | 2,530.53 | 5.79 | 0.01 | 10.44 | 0.63 | 0.21 | 0.33 | 0.11 | 0.14 | 5.26 | 5.00 | 1.81 | |
Mongolia | Mean | 23.03 | 124.95 | 1.16 | 2.60 | 114.85 | 10.51 | 7.37 | 6.91 | -0.21 | -0.39 | 38.34 | 46.87 | 83.53 |
Std. Dev | 9.80 | 42.01 | 0.12 | 0.11 | 10.57 | 15.54 | 0.46 | 0.08 | 0.19 | 0.17 | 16.59 | 17.72 | 59.42 | |
Pakistan | Mean | 800.71 | 1,172.92 | 56.30 | 1.73 | 30.18 | 1.18 | 6.21 | 7.12 | -0.82 | -0.62 | 20.31 | 24.36 | 2.12 |
Std. Dev | 192.46 | 413.51 | 9.73 | 0.16 | 3.38 | 1.00 | 0.24 | 0.22 | 0.08 | 0.15 | 4.71 | 5.88 | 0.81 | |
Paraguay | Mean | 64.11 | 215.71 | 2.88 | 1.75 | 75.97 | 1.14 | 6.04 | 8.46 | -0.86 | -0.89 | 27.32 | 15.65 | 19.67 |
Std. Dev | 15.66 | 60.67 | 0.40 | 0.07 | 5.54 | 0.74 | 0.46 | 0.34 | 0.17 | 0.16 | 12.02 | 7.45 | 8.42 | |
Peru | Mean | 286.70 | 894.95 | 15.50 | 2.73 | 46.87 | 3.81 | 7.29 | 8.88 | -0.57 | -0.30 | 31.36 | 19.68 | 12.31 |
Std. Dev | 85.65 | 317.16 | 2.03 | 0.06 | 6.91 | 1.55 | 0.29 | 0.16 | 0.08 | 0.18 | 9.41 | 12.09 | 5.96 | |
Philippines | Mean | 583.91 | 1,755.00 | 37.40 | 2.58 | 71.18 | 1.60 | 7.16 | 8.23 | -0.45 | -0.01 | 34.69 | 23.39 | 10.78 |
Std. Dev | 190.57 | 588.91 | 4.98 | 0.08 | 11.31 | 0.78 | 0.31 | 0.22 | 0.08 | 0.12 | 6.87 | 11.12 | 7.69 | |
Romania | Mean | 417.22 | 1,237.38 | 9.65 | 2.38 | 70.09 | 3.69 | 7.06 | 7.23 | 0.05 | -0.17 | 26.25 | 15.52 | 24.15 |
Std. Dev | 87.37 | 485.95 | 0.77 | 0.18 | 13.39 | 2.28 | 0.55 | 0.19 | 0.23 | 0.16 | 10.45 | 3.75 | 8.93 | |
Russian | Mean | 3,281.71 | 14,650.00 | 74.60 | 3.09 | 52.64 | 2.21 | 6.25 | 5.00 | -0.85 | -0.33 | 39.90 | 14.55 | 13.64 |
Std. Dev | 600.78 | 3,099.67 | 1.21 | 0.11 | 5.95 | 1.18 | 0.46 | 0.36 | 0.10 | 0.20 | 13.13 | 6.89 | 3.52 | |
South Africa | Mean | 676.79 | 2,005.00 | 19.60 | 3.29 | 53.39 | 1.42 | 7.35 | 7.88 | 0.11 | 0.47 | 61.67 | 12.32 | 9.34 |
Std. Dev | 103.94 | 762.60 | 1.80 | 0.08 | 5.19 | 1.22 | 0.12 | 0.11 | 0.09 | 0.15 | 4.90 | 6.67 | 3.30 | |
Sri Lanka | Mean | 188.55 | 420.06 | 8.11 | 2.53 | 61.75 | 1.27 | 6.60 | 5.79 | 0.04 | -0.16 | 35.58 | 38.44 | 4.61 |
Std. Dev | 60.75 | 244.78 | 0.31 | 0.18 | 13.54 | 0.33 | 0.27 | 0.41 | 0.16 | 0.11 | 7.46 | 7.13 | 3.69 | |
Thailand | Mean | 947.63 | 4,285.00 | 38.20 | 2.23 | 126.35 | 2.73 | 6.85 | 7.25 | 0.02 | 0.31 | 101.03 | 8.27 | 15.80 |
Std. Dev | 203.79 | 1,151.33 | 1.45 | 0.16 | 8.82 | 1.18 | 0.29 | 0.27 | 0.23 | 0.07 | 10.36 | 5.75 | 3.63 | |
Turkiye | Mean | 1,566.89 | 5,280.00 | 26.20 | 3.20 | 50.74 | 1.60 | 5.94 | 7.30 | -0.01 | 0.18 | 39.39 | 14.92 | 17.12 |
Std. Dev | 474.85 | 3,072.90 | 4.03 | 0.06 | 5.15 | 0.85 | 0.51 | 0.59 | 0.15 | 0.14 | 19.86 | 4.71 | 5.31 | |
Ukraine | Mean | 523.91 | 3,690.00 | 22.10 | 2.41 | 99.13 | 3.61 | 6.18 | 7.38 | -0.79 | -0.60 | 40.49 | 20.08 | 29.41 |
Std. Dev | 71.23 | 1,695.78 | 0.67 | 0.28 | 7.67 | 2.09 | 0.46 | 0.52 | 0.09 | 0.14 | 19.02 | 8.06 | 16.85 | |
Vietnam | Mean | 568.97 | 1,109.63 | 49.20 | 2.49 | 155.00 | 4.94 | 6.26 | 5.37 | -0.39 | -0.22 | 76.71 | 24.74 | 7.32 |
Std. Dev | 208.02 | 478.16 | 5.70 | 0.26 | 30.65 | 1.68 | 0.79 | 0.28 | 0.23 | 0.18 | 23.09 | 7.08 | 3.45 | |
Total | Mean | 1,281.19 | 5,271.67 | 74.10 | 2.53 | 69.35 | 3.81 | 6.60 | 6.95 | -0.49 | -0.27 | 39.46 | 21.95 | 15.80 |
Std. Dev | 2,565.15 | 11,648.67 | 161.00 | 0.47 | 35.00 | 5.63 | 0.84 | 1.23 | 0.40 | 0.41 | 27.87 | 16.17 | 20.82 | |
Min | 10.84 | 38.44 | 0.95 | 1.46 | 20.72 | -37.17 | 4.28 | 3.08 | -1.43 | -1.21 | 3.83 | 1.15 | 0.00 | |
Max | 22,492.60 | 102,00.00 | 800.00 | 3.55 | 211.50 | 55.07 | 8.17 | 9.46 | 0.58 | 0.73 | 165.39 | 92.34 | 150.43 |
Appendix C: Pearson correlation matrix
\({l}_{it}\) | \({k}_{it}\) | \({h}_{it}\) | \({trade}_{it}\) | \({fdi}_{it}\) | \({regfree}_{it}\) | \({stateown}_{it}\) | \({rule}_{it}\) | \({goveff}_{it}\) | \({creditpri}_{it}\) | \({debtstkpub}_{it}\) | \({debtstkpri}_{it}\) | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
\({l}_{it}\) | 1.00 | ||||||||||||||
\({k}_{it}\) | 0.86*** | 1.00 | |||||||||||||
\({h}_{it}\) | -0.26*** | 0.14*** | 1.00 | ||||||||||||
\({trade}_{it}\) | -0.40*** | -0.39*** | 0.18*** | 1.00 | |||||||||||
\({fdi}_{it}\) | -0.30*** | -0.26*** | 0.14*** | 0.37*** | 1.00 | ||||||||||
\({regfree}_{it}\) | -0.44*** | -0.34*** | 0.26*** | 0.32*** | 0.22*** | 1.00 | |||||||||
\({stateown}_{it}\) | -0.36*** | -0.31*** | -0.16*** | -0.05 | -0.02 | 0.33*** | 1.00 | ||||||||
\({rule}_{it}\) | 0.00 | 0.16*** | 0.21*** | 0.03 | -0.03 | 0.14*** | -0.01 | 1.00 | |||||||
\({goveff}_{it}\) | 0.17*** | 0.38*** | 0.26*** | -0.03 | -0.10** | 0.27*** | 0.02 | 0.71*** | 1.00 | ||||||
\({creditpri}_{it}\) | 0.39*** | 0.41*** | 0.10** | 0.28*** | 0.08* | 0.01 | -0.38*** | 0.28*** | 0.37*** | 1.00 | |||||
\({debtstkpub}_{it}\) | -0.54*** | -0.63*** | -0.10** | 0.22*** | 0.05 | 0.10** | 0.13*** | -0.07* | -0.14*** | -0.39*** | 1.00 | ||||
\({debtstkpri}_{it}\) | -0.42*** | -0.22*** | 0.43*** | 0.36*** | 0.27*** | 0.36*** | 0.04 | -0.01 | -0.06 | 0.03 | 0.07 | 1.00 | |||
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Yap, W.K., Kamarudin, F. & Gryzelius, J. External debt, state ownership and technical efficiency: A stochastic frontier analysis of emerging economies. Port Econ J (2024). https://doi.org/10.1007/s10258-024-00255-8
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DOI: https://doi.org/10.1007/s10258-024-00255-8