Is Ethiopia's debt sustainable?

The debt burden facing a number of low-income countries has received considerable international attention. The international development community has begun to recognize that options aimed at providing debt relief to countries where debt is not sustainable needs to be seriously explored. In this paper, the authors build on the Branson model of debt sustainability and apply it to a severly indebted, low-income country, Ethiopia. They provide a simplified framework where debt sustainability (both domestic and external) is an integral element of macroeconomic stability. Interactions between different policy variables (such as debt, fiscal, and interest rate policies), outcome variables (such as GDP and export growth), and international economic conditions (international interest rates) jointly define whether a country is on a sustainable debt path. Equations on debt sustainability can be estimated under this framework, thus providing a good starting point for examining debt sustainability. There are three lessons from the empirical analysis of Ethiopia: 1) a strong reform program is critical in bringing the country back on a sustainable debt path; 2) the issue of debt relief requires serious consideration by the international development community; and 3) growth and resource mobilization need adequate emphasis to ensure that debt is repaid.Payment Systems&Infrastructure,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Strategic Debt Management,Banks&Banking Reform,Environmental Economics&Policies,Strategic Debt Management,Public Sector Economics&Finance,Economic Theory&Research

The stability of the Kuznets curve: some further evidence

This paper examines the stability of the (cross-sectional) Kuznets curve with focus on the international comparability of both income distribution and income data. If the Kuznets curve changes its slope, or if the relationship between income and income inequality is not stable over time, then, the validity of using the cross-sectional Kuznets curve to test the Kuznets hypothesis is considerably weakened, and consequently the results from a cross-section of countries may not be used to predict the secular development of a country. For reasonable international comparability, household income distribution data and per capita GDP data based on purchasing power parity are employed in this paper. We show that, contrary to a previous finding, the (cross-sectional) Kuznets curve is stable.

Does financial development precede growth? Robinson and Lucas might be right

This paper studies whether there is any causal link between financial development indicators and economic growth, using Sims-Geweke causality tests performed in the large panel data set provided by Levine, Loayza and Beck. In sharp contrast to their findings, no evidence was found of any positive unidirectional causal link from financial development indicators to economic growth. On the contrary, a substantial indication that economic growth precedes subsequent financial development was found. As argued by Robinson, financial development might primarily follow economic growth, as a result of increased demand for financial services. Although the present result does not quite imply that the role of financial development in the development process is not important, the bottom line is that a more balanced approach to studying the relationship between growth and finance needs to be adopted. As termed by Lucas, the importance of financial development in economic growth might be very badly 'over-stressed'. Robinson and Lucas might be right.