IDEAS home Printed from https://ideas.repec.org/a/mes/postke/v45y2022i3p476-502.html
   My bibliography  Save this article

The global financial cycle and external debt: effects on growth and distribution in emerging and developing economies

Author

Listed:
  • Pablo Bortz
  • Gabriel Michelena
  • Fernando Toledo

Abstract

The global financial cycle (GFCy), driven by international monetary conditions and global risk perceptions, is a major driver of capital flows to and out of emerging and developing economies (EDEs), reflected in external indebtedness. This paper analyzes the impact of the GFCy on the economic performance of EDEs borrowing in international markets. Rising external borrowing generates appreciating pressures on the exchange rate and lowers the cost of external borrowing. The overall impact of these reinforcing effects acts over investment, debt servicing and the current account balance. We conduct simulation exercises which show that rising external debt coupled with lax external financial conditions have a detrimental impact on economic activity and creates inflationary pressures through the effect of financial costs and the reaction of nominal wage demands. We show that capital control measures increase the degrees of freedom of monetary authorities.

Suggested Citation

  • Pablo Bortz & Gabriel Michelena & Fernando Toledo, 2022. "The global financial cycle and external debt: effects on growth and distribution in emerging and developing economies," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 45(3), pages 476-502, July.
    • Handle: RePEc:mes:postke:v:45:y:2022:i:3:p:476-502
    DOI: 10.1080/01603477.2022.2068032
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/01603477.2022.2068032
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/01603477.2022.2068032?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:postke:v:45:y:2022:i:3:p:476-502. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MPKE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.