Relation of Debt Relief to Social and Military Expenditures: Empirical Evidence

• Thesis title in Czech: Jaký je vliv odpuštění dluhů na skladbu veřejných výdajů?
• Thesis title in English: Relation of Debt Relief to Social and Military Expenditures: Empirical Evidence
• Academic year of topic announcement: 2019/2020
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Jaromír Baxa, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 14.05.2020
• Date of assignment: 14.05.2020
• Date and time of defence: 08.06.2021 09:00
• Venue of defence: Opletalova - Opletalova 26
• Date of electronic submission: 04.05.2021
• Date of proceeded defence: 08.06.2021
• Opponents: Petr Pleticha, M.Sc., Ph.D.

Guidelines

Research question and motivation
Sovereign debt has existed for at least eight centuries and throughout all its history reliefs have occurred. Naturally, most of these have not been voluntary – but for the creditors, debt enforcement against powerful monarch was riskier than a write-off (Stasavage, 2016).
After decolonization of Africa, many countries on this continent have taken heavy debt loads. By 1980s it became obvious that these were unsustainable – and restructurings followed (Ross, 1998). As turn of millennium was approaching, debt relief became popular also among wider public in the developed world. This was one of the factors which led to creation of HIPC programme, by now the widest initiative to reduce indebtedness of poor countries (Easterly, 2002).
Of course, the programme has not been spared from criticism. Traditional sceptics like Easterly have questioned whether the initiative can achieve any positive results at all, and many economists have been looking into longer-term consequences of the relief. Debt sustainability and impact of relief on growth have probably been examined most often.
Research of this type is extremely important, but author of this text wants to explore another field.
As HIPC debt relief is aimed mainly at poverty alleviation, this thesis will try to test whether the poor countries‘ resources saved by the relief are allocated to areas where they have the potential to reduce poverty.
Therefore, the thesis will examine what effect the debt relief has on (1) education expenditures, (2) health expenditures, and (3) military spending.
From previous studies we know that high military expenditure in the poor countries may lead to overindebtedness (Dunne, 2019), that education and health expenditure goes quickly down with the increasing debt servicing payments (Fosu, 2010; Lora, 2007), and that previous debt reductions led to certain rise in education and health spending, but only in countries with better governance standards (Dessy, 2007).
Contribution
By estimation of the social spending – debt relief relation this thesis will revisit the topic of Dessy (2007), taking advantage of the longer time span that can be examined. When the military spending is concerned, this thesis will try to explore fields which have probably not been explored before.

References

Dessy, S. E., & Vencatachellum, D.. (2007). Debt Relief and Social Services Expenditure: The African Experience, 1989–2003. African Development Review. African Development Review. http://doi.org/10.1111/j.1467-8268.2007.00154.x
Dunne, J. P., Nikolaidou, E., & Chiminya, A.. (2019). Military Spending, Conflict and External Debt in Sub-Saharan Africa. Defence and Peace Economics. Defence and Peace Economics. http://doi.org/10.1080/10242694.2018.1556996
Easterly, W.. (2002). How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief. World Development. World Development. http://doi.org/10.1016/s0305-750x(02)00073-6
Fosu, A. K.. (2010). The External Debt-Servicing Constraint and Public-Expenditure Composition in Sub-Saharan Africa. African Development Review. African Development Review. http://doi.org/10.1111/j.1467-8268.2010.00252.x
Lora, E., & Olivera, M.. (2007). Public debt and social expenditure: Friends or foes?. Emerging Markets Review. Emerging Markets Review. http://doi.org/10.1016/j.ememar.2006.12.004
Reno, W.. (2002). Uganda's politics of war and debt relief. Review of International Political Economy. Review of International Political Economy. http://doi.org/10.1080/09692290210150671
Ross, M. K., et. al. (1998). External Debt Histories of Ten Low-Income Developing Countries: Lessons from Their Experience. IMF Working Papers. International Monetary Fund.
Stasavage, D.. (2016). What we can learn from the early history of sovereign debt. Explorations in Economic History. Explorations in Economic History. http://doi.org/10.1016/j.eeh.2015.09.005

Preliminary scope of work

Methodology
The thesis will use data on debt relief from databases of International Monetary Fund and The World Bank Group, data on education expenditures from databases of The World Bank Group and UNESCO, data on health expenditures from WHO, and data on military spending from the website of SIPRI.
Outline
1. Introduction
2. Literature Review
3. Hypotheses
4. Estimation
5. Empirical results
6. Conclusion