Debt Overhang, Investment and Economic Growth in the Philippines (Revisiting La Década Perdida 1970 to 2024)

Abstract

This study examines whether annual changes in external debt and actual debt-service payments are associated with economic growth and investment in the Philippines, and whether these relationships change around the end of the Lost Decade. Independently retrieved World Bank data cover 1970–2024. Historical comparisons are combined with dynamic regressions, heteroskedasticity and autocorrelation consistent inference, an exploratory autoregressive distributed lag levels assessment, and recursive wild-bootstrap stability tests. The principal growth and capital formation growth equations use 54 and 53 observations, respectively. Higher debt burdens coincide with negative average per capita growth during 1983–1992, followed by improved average performance from 1993. Debt and service change coefficients are not statistically distinguishable from zero in the principal equations, and their confidence intervals remain broad. Bootstrap tests do not establish a robust 1993 parameter shift at the 5% level. Significant interaction and nonlinear alternatives fail specification checks, while weak output adjustment limits the long-run interpretation. Inflation and depreciation have negative conditional associations with growth. These findings qualify the evidence available from annual aggregate data without disproving persistent debt overhang or identifying a causal restructuring effect or borrowing threshold. Numerical replication confirms the estimates, and recent official-source substitutions leave the principal findings unchanged. Policy implications emphasize distinguishing outstanding obligations from realized payments and evaluating sustained recovery. Full historical source harmonization remains incomplete.