Economic Interdependence and the International Implications of Supply-Side Policies
This paper evaluates the effect of foreign debt on investment in a heavily-indebted country, using numerical simulations of a simple rational expectations growth model. Two particular effects are distinguished. First, the effect due to 'debt overhang' of past accumulated debts; and second,...
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Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
1989
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Series: | IMF Working Papers
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Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
Summary: | This paper evaluates the effect of foreign debt on investment in a heavily-indebted country, using numerical simulations of a simple rational expectations growth model. Two particular effects are distinguished. First, the effect due to 'debt overhang' of past accumulated debts; and second, the effect of 'credit rationing' or inability to obtain new financing. The results from the simulations indicate the credit rationing may be a powerful disincentive to investment. This suggests that in order to maximize the impact on productive investment, debt reduction plans need to be accompanied by additional foreign lending |
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Physical Description: | 30 pages |
ISBN: | 9781451957860 |