Sources of Debt Accumulation in a Small Open Economy

This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty...

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Bibliographic Details
Main Author: Senhadji, Abdelhak
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1997
Series:IMF Working Papers
Subjects:
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Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty generates forecast errors that lead to substantial debt accumulation. It is found that the assumption of an upward-sloping supply function of foreign loans, which is a more realistic formulation for developing countries than the usual perfect elasticity, offers an alternative to the Uzawa-type utility function for analyzing asset accumulation in the small open economy framework
Physical Description:26 pages
ISBN:9781451856606