Economic Interdependence and the International Implications of Supply-Side Policies [electronic resource]
- Washington, D.C. : International Monetary Fund, 1989.
- 1 online resource (30 p.)
- IMF Working Papers; Working Paper ; No. 89/74 .
- IMF Working Papers; Working Paper ; No. 89/74 .
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.
1451957866 : 10.00 USD
1018-5941
10.5089/9781451957860.001 doi
Debt Overhang
Debt Relief
Debt Service
Debtor Country
Foreign Debt
Brazil
Colombia
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.
1451957866 : 10.00 USD
1018-5941
10.5089/9781451957860.001 doi
Debt Overhang
Debt Relief
Debt Service
Debtor Country
Foreign Debt
Brazil
Colombia