DOES THE GLOBAL CRISIS AFFECT THE RELATIONSHIP BETWEEN EXTERNAL DEBT AND ECONOMIC GROWTH? A LINEAR AND NONLINEAR ANALYSIS

Abstract The analysis will analyze impact on economic growth of external debt: linear and nonlinear effects of external debt. This sample covers 7 ASEAN countries in the period 2002-2021. In terms of estimation method, in this study we use GMM (generalized method of moments) to estimate that external debt influences economic growth, and we use threshold effects to estimate the threshold value of external debt in that impact. Moreover, the Bayesian technique is used to verify the robustness of the estimation outcomes. Estimates of existing models can confirm that external debt considerably affects economic growth, and this effect can be linear or nonlinear. Especially, it indicates more clearly and significantly different relationship between external debt and economic growth in times of global crisis, a particular finding of this study compared with prior studies. To the best of the author’s knowledge, this is one of the early research projects on linear and nonlinear effect external debt takes on economic growth during periods of global crisis. Based on the intriguing findings of this study, the ASEAN nations may adopt the necessary policies to develop external debt to enhance economic growth.