Economic Growth And Foreign Debt The Ethiopian Experience (1964-1995)

This Thesis investigates the relationship between foreign capital (subsequently debt) andrnGrowth on the one hand, and the effect of debt overhang on private investment in EthiopiarnOn the other hand.rnrnIn the first part, a debt-growth relationship based on a marginal condition (partial derivative)rnwas formulated. The contribution of foreign capital to growth shows mixed results. Duringrnthe Imperial era and under the TGE, foreign capital contributed positively to growth, whilernduring the Derg era the contribution was negative.rnrnIn the second part, using an accelerator principle, a private investment model having debtrnoverhang as one of the explanatory variables was developed. The effect of debt overhang onrnPrivate investment was found to be insignificant in the shoi1-run, but the long-run t-statisticrnOf the debt overhang indicate the possibility of debt overhang in the long run.

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