Economic Interdependence and the International Implications of Supply-Side Policies [electronic resource]
Material type:
TextSeries: IMF Working Papers; Working Paper ; No. 89/74Publication details: Washington, D.C. : International Monetary Fund, 1989Description: 1 online resource (30 p.)ISBN: 1451957866 :ISSN: 1018-5941Subject(s): Debt Overhang | Debt Relief | Debt Service | Debtor Country | Foreign Debt | Brazil | ColombiaAdditional physical formats: Print Version:: Economic Interdependence and the International Implications of Supply-Side PoliciesOnline resources: IMF e-Library | IMF Book Store Abstract: 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.
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.
Description based on print version record.
There are no comments on this title.