Navigating Debt Burden: An analysis of Economic Freedom, Logistics Performance and Foreign Aid using Method of Moments Quantile Regression

Abstract

Navigating debt burden is important because it helps to manage and reduce the impact of debt effectively. This paper examined the influence of economic freedom (EF), logistic performance (LP) and foreign aid (FA) on debt burden (DEB) in 35 debt-prone economies between 2007 and 2018. The empirical findings based on the Method of Moment Quantile Regression (MMQR) confirm that LP and FA have a significant positive association with DEB across all quantiles. Interestingly, the outcomes also reveal that the relationship between EF and DEB is not straightforward and shows a varying pattern across different levels of debt. The findings suggest a positive relationship for lower quantiles and a negative relationship for higher quantiles, thus highlighting the complexity of the relationship between EF and DEB. The robustness checks of the Pool Mean Group (PMG/ARDL), Fully Modified Ordinary Least Squares (FMOLS), Fixed Effects (FE), and Random Effects (RE) validate and reinforce the results of MMQR. We suggest a tailored and personalized strategy to meet the unique characteristics and nuances of each situation rather than using a one-sizefits-all approach.