The external debt repayments problems of LDC's: An econometric model based on panel data

Abstract This paper offers an econometric analysis of the problems of repayment of external debt of developing countries along credit rationing lines, using a panel set of data. The model presented employs hitherto unexploited sources of information about the incidence and extent of credit constraints. The non-linear estimation techniques pay particular attention to the panel nature of the data by allowing for random effects to model unobserved country heterogeneity. Statistical exogeneity of interest costs is not rejected. The model is used to investigate the role of the ‘petrodollars’ and the ‘liquidity versus solvency’ question. It is found that time dependence arises both through persistent country-specific unobservables and through the history of debt repayments problems.

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