EXTERNAL DEBT AND GROWTH IN ARMENIA

Present paper investigates the effect of external debt on the economic growth using the quarter data from 1997 to 2008 of Armenian economy. We argue that in order to obtain the expected effect it’s necessary to combine all factors which have direct impact or indirect connection with HIPS countries. We showed that this principle would increase the productivity of Armenian economy. Furthermore, we showed the presence of the correlation between the studied indicators. The evaluation of these indicators and their influence on the economy is studied. This study provides calculations of the productivity of the national economy.


Introduction
The effect of external debt on aggregate economic growth is one of the subjects for hot debates in the economy.A great number of countries with the high level of external debt (Highly Indebted Poor Countries) continue the same strategy increasing their external debt.The purpose of this tactics is to provide stable development of various economic structures.
The aim of the current study is to analyse the indicators evaluating an external debt as well to show that the investigation of these indicators allows creating the basis providing the calculation of productivity.As the case study the Armenian economy is studied.
The basic work is presented in sections 2 and 3.The theoretical and practical parts concerning the influence of an external debt on the economic development of the country as well as the model of this influence on different sectors of economy are presented in the second section.
The tasks of the study are: the evaluation of the effect of external debt on GDP in Armenian economy.
The corresponding qualitative and quantitative research methods based on econometric modelling using quarter data of Armenian economy since 1998 have been studied.

The empirical analysis
The data for the investigation presented in current quarterly data of the Armenian economy from 1996 to 2008 are used.In the study we didn't identify channels on which the external debt influences economic development.Instead, we investigated the data which can create the analytical base.(export plus import counted up under gross national product); g) Growth of total investments counted up under Gross National Product in log (GROINV); h) Growth of quantity of respondents finished high-school in log (GSEC); i) Monetary base in log (M1); j) A consumer price index in log (CPI(1) index).As the model of growth the model is studied: GRPCY i =α+α 1 LYRICS(1)+α 2 (TOTGR)+α 3 (POPGR)+α 4 (EXDEPT)+ +α 5 (OPEN)+α 6 (GROINV)+α 7 (GSEC)+ α 8 (M1)+α 9 (CPI(1)index)+ε i, where ε i is a standard error.
Rates of Gross National Product per capita in log we have been accepted as an explanatory variable.For the detailed research of the correlation between the studied variables it is necessary to carry out the research on economic indicators separately and serially.
First of all, the study of the model with detailed description of ten indicators separately was carried out.The first indicator is GPRCY.Proceeding from the data of the analysis on normal distribution, it is possible to draw conclusions that, concluding from indicators Skewness, Kurtosis, Std.Dev. the normal distribution is not presented in the model.

Source: Year Book of National Statistic Surveys of the Republic of Armenia
The next studied indicator is LYRPC (-1).In comparison with the previous indicator the normal distribution for it is visible.As in the previous model the account of the stability is visible.

Source: Year Book of National Statistic Surveys of the Republic of Armenia
The distribution function of the variable M1 is not normal and time series is not stable.Thus, the data of the table 1 showed that the model for GPRCY confirms the adequacy with 99 per cent.T-Statistics in an absolute value is more than 2, and the indicator Prob (F-statistic) is less than 0.05.Therefore, we could suggest the accuracy of R-squared.

Conclusion
The correlation between variables of the model is studied and we conclude that the direct correlation between factors does not exist.
Operating connection between an external debt and the economic development continues together with the new audience and economic debates.This, respectively, became a new theme for debate and disputes on international scenes.Experience of the HIPS countries has given a topic for consideration that the increase of the size of an external debt, consequently, has negative influence on per capita income growth.Most debates concern a question, whether it is possible to adopt experience of the developed countries applying it to the HIPS countries.We found that the fundamental literature devoted to the study of the influence of an external debt on economic development suggests that it is not sufficient to study the countries with the high rate of an external debt.In addition it should be noted that these countries do not have stable market share in the international markets and the influence of an external debt on economic development in these countries strongly differs.This situation is caused by the structure of the economy and the public sector.
The study showed that in order to obtain the expected effect it is necessary to combine all factors which have direct or indirect connection with the HIPS countries.These principles will increase the productivity if we make the careful empirical analysis of an external debt and business factors showed the way to evaluate the level of the influences of the economy.
An attempt is implemented to investigate Armenian economy as a case study.In particular it is possible to evaluate changes of GPRCY as consequences of changes of other economic indicators.One of fascinating conclusions is the fact that studied variables are not correlated with GPRCY.The estimation becomes positive in the whole package.The correlation between indicator GPRCY and combination OPEN-GROINV could be considered as one of strategic targets for the investigations.
The statistical data from different sectors of the economy which are providing the study of the external debt have been introduced.As indicators of an external debt are considered: a) Counted up rates of the development of Gross National Product in comparison with the last quarter per capita in log (GRPCY); b) The Gross National Product per capita counted up in comparison with the first quarter in log (LYRPC (-1)); c) The general trade growth in comparison with the last quarter trade in log (TOTGR); d) Population growth in comparison with the last quarter population in log (POPGR); e) The external debt in comparison with the last quarter external debt in log (EXTDEBT); f) Economy openness in comparison with the previous in log (OPEN) Year Book of National Statistic Surveys of the Republic of ArmeniaConcerning the indicator EXTDEBT of the model we can conclude that its distribution function isn't normal.However, in comparison with the previous objects the stability is not visible.Concerning the indicator OPEN of the model the distribution function isn't normal.However, Dickey Fuller's test given in the column is not stable.Simultaneously, the value of ADF Test Statistics is not above critical value.
Source: Year Book of National Statistic Surveys of the Republic of ArmeniaLike the third case for TOTGR Skewness indicators are equal 0.05, Kurtosis 2.06.Therefore, it is possible to draw a conclusion on the presence of normal distribution.Source: Year Book of National Statistic Surveys of the Republic of ArmeniaConsequently, the behaviour of TOTGR indicator is stable.Analogously a РОРGR indicator is stable.Source: Source: Year Book of National Statistic Surveys of the Republic of Armenia Source: Year Book of National Statistic Surveys of the Republic of ArmeniaConcerning the GSEC we can conclude that its distribution function isn't normal, but a time series is stable.

MacKinnon critical values for rejection of hypothesis of a unit root. Augmented Dickey-Fuller Test Equation
Source: Year Book of National Statistic Surveys of the Republic of ArmeniaCPI (1) index has normal distribution, and the time series is stable.

Table 1 .
The final results of the model (GRPCY is dependent)