Debt Overhang and Economic Growth : The Asian and the Latin American Experiences

Debt overhang may impede a country's investment and growth. Accordingly, the World Bank initiated debt relief programs. However, doubts have been raised regarding the empirical validity of the debt overhang hypothesis. We employ panel data for testing the existence of debt overhang for Latin American and Asian borrowers. A variety of dynamic panel data econometric estimations as well as dynamic and system GMM estimations are conducted. Our results indicate that debt overhang impeded growth in Latin American economies severely and the impact was moderately negative in the Asian region