Dynamics of External Debts Among Heavily Indebted Poor Countries (Hipcs): A Panel Data Approach‪.‬

ABSTRACT This study uses panel data for 29 Heavily Indebted Poor Countries (HIPCs) from 1984 to 2000 to examine the dynamic relationships between growth of external debts with other determinant variables (exchange rate, interest payment on debt, and non-interest current account balance) and control variables such as governance indicators. The fixed- and random-effect models were used to investigate these relationships. First, the results show that high interest payments have adverse effects on the growth of external debts. Second, real exchange rates have positive influence on growth of external debts. Third, corruption is found to distort economic growth and reduces the efficiency of the public sector. Finally, stability index contributes negatively to the growth of external debts. Therefore, given these dynamic relationships; this study suggests that there are strong correlation between growth of external debts and exchange rate policy, interest payments and some governance indicators. This evidence may partially explain the explosive external debt position of the HIPCs.