Determinants of government and external debt : evidence from the young democracies of South America

Abstract

I investigate the main determinants of government and external debt in the young democracies of South America between 1970 and 2007. The results, based on dynamic panel time-series analysis, suggest that economic growth has significantly reduced the debt ratios in the region. Other candidates suggested by the literature—for example, inflation, inequality, and constraints on the executive —do not present the expected or clear-cut estimates on government and external debt. The results suggest that an economic environment geared toward generating economic activity and prosperity is an important factor in keeping the debt ratios under control in the region.