Does Foreign Debt Contribute to Economic Growth?
We study the relationship between foreign debt and economic growth using a panel data set of 114 countries from 1980 to 2015. We find that economic growth correlates positively with foreign debt and that the relationship is causal in nature by using the credit default swap as an instrumental variable. Furthermore, we find that foreign debt increases economic growth through private investment and capital accumulation, and that the mechanism is supported by “uphill” capital flows from non-OECD to OECD countries.
Professor Tomoo Kikuchi is an associate professor at the Graduate School of Asia-Pacific Studies at Waseda University and an adjunct senior fellow in the S. Rajaratnam School of International Studies (RSIS) at Nanyang Technological University. Previously, he worked at the National University of Singapore, Nanyang Technological University, and Korea University and held visiting positions at the MIT Sloan School of Management and the Keio University Global Research Institute. He is interested in how the global financial market contributes to economic growth and causes cross-country income differences. His theoretical work is broadly on topics like international capital flows, bubbles and production networks while his empirical work is on the relationship between firm FDI and bank FDI and how international capital flows contribute to growth. His papers have appeared in journals such as the Journal of Economic Theory, Theoretical Economics, and the Journal of Money, Credit and Banking. He has edited many books and journal special issues on trade, finance, and investment in Asia and is an associate editor of the Journal of Asian Economics. He obtained his Ph.D. in economics from Bielefeld University in Germany in 2006.