Impact of Disaggregated External Debt on Economic Growth: Evidence from Asian Developing Economies

Abstract This study investigate the impact of total and disaggregated external debt on economic growth, across 32 Asian developing economies (ADE) from 1995 to 2020. The study applied the generalized method of moments (GMM) and dynamic common correlated estimator (DCCE) with interaction terms of institutional quality and macroeconomic policy to address the non-linearity, across-country heterogeneity, cross-sectional dependence and endogneity. The empirical results indicate that total external debt and its types initially harm economic growth, except for commercial creditors’ debt, which has positive effects. Short-term, private, and multilateral debt show weaker negative associations compared to long-term, public, and bilateral debt. Incorporating interaction terms in non-linear models reveal a shift from negative to positive impacts, highlighting the importance of robust institutional quality and stable macroeconomic policy in mitigating adverse debt effects. Our findings underline the necessity of tailored policies accounting for specific impacts of different debt types on economic growth. Moreover, highlight the significance of institutional quality and macroeconomic policy standards to manage risks, optimize debt management practices, adjust fiscal policies, and foster sustainable economic growth. Future research should further investigate the broad impact of domestic debt in conjunction with external debt across different countries, time periods, and methodological approaches.