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,...
|a Economic Interdependence and the International Implications of Supply-Side Policies.
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|a Washington, D.C. :
|b International Monetary Fund,
|c 1989.
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|a 1 online resource (30 pages)
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|a IMF Working Papers
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|a <strong>Off-Campus Access:</strong> No User ID or Password Required
500
|a <strong>On-Campus Access:</strong> No User ID or Password Required
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|a Electronic access restricted to authorized BRAC University faculty, staff and students
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|a 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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|a Mode of access: Internet
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|a IMF Working Papers; Working Paper ;
|v No. 1989/074
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|z Full text available on IMF
|u http://elibrary.imf.org/view/journals/001/1989/074/001.1989.issue-074-en.xml
|z IMF e-Library