The Internal-External Debt Ratio and Economic Growth

In this paper we examine the effects of the ratio of internal to external public debt on a country's economic growth.. These effects are examined through a competitive, decentralized model of endogenous economic growth. which relies on public investments. Our findings show that as the internal-external public debt ratio increases, the public to private capital ratio increases which in turn positively affects the long rim economic growth rate. The main conclusion of this paper is that the out flow of domestic capital which is needed to service external debt has unfavorable repercussions on an economy's long run steady state growth rate.