External Debt and Manufacturing Sector’s Performance in MINT Countries: Evidence from Dynamic Heterogeneous Panel Estimation Techniques

Abstract

The study assesses external debt’s impact on MINT countries’ (Mexico, Indonesia, Nigeria, and Turkiye) manufacturing sector’s performance during the 1980–2021 period, using dynamic heterogeneous panel methods (i.e. dynamic fixed effects, mean group, and pooled mean group estimators). The findings portray the presence of long-term relation between external debt and manufacturing performance (alongside external debt service, inflation rate, population size, exchange rate, FDI, and agricultural output) based on the Kao’s residual cointegration test. The empirical outcomes portray a dampening impact of external debt on manufacturing sector’s performance during the short and long term. Moreover, external debt servicing, FDI, population size, and inflation rate promote the sector’s performance, but exchange rate (depreciation) hurts manufacturing performance. Furthermore, the Dumitrescu- Hurlin heterogeneous panel causality test portrays a one-way causality from external debt servicing (and exchange rate) to manufacturing sector’s performance and a two-way causality between manufacturing sector and population (and FDI and agricultural output). Thus, policies aimed at lowering external debt, lessening exchange rate variability and inflation rate, and boosting inward FDI are recommended to promote the sector’s performance