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A Debt Overhang Model for Low-Income Countries

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  • Junko Koeda

Abstract

This paper presents a theoretical model to explain how debt overhang is generated in low-income countries and discusses its implications for aid design and debt relief. It finds that the extent of debt overhang and the effectiveness of debt relief depend on a recipient country’s initial economic conditions and level of total factor productivity. IMF Staff Papers (2008) 55, 654–678. doi:10.1057/imfsp.2008.13; published online 10 June 2008

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 55 (2008)
Issue (Month): 4 (December)
Pages: 654-678

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Handle: RePEc:pal:imfstp:v:55:y:2008:i:4:p:654-678

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  1. Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers, Hong Kong Institute for Monetary Research 042002, Hong Kong Institute for Monetary Research.
  2. Reinhart, Carmen & Ostry, Jonathan, 1991. "Private Saving and Terms of Trade Shocks," MPRA Paper 13716, University Library of Munich, Germany.
  3. Claessens, Stijn, et al, 1997. "HIPCs' Debt Review of the Issues," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 6(2), pages 231-54, July.
  4. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers, Boston University - Department of Economics 37, Boston University - Department of Economics.
  5. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  6. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
  7. Yue, Vivian Z., 2010. "Sovereign default and debt renegotiation," Journal of International Economics, Elsevier, Elsevier, vol. 80(2), pages 176-187, March.
  8. Eduardo Borensztein & Atish Rex Ghosh, 1989. "Foreign Borrowing and Export Promotion Policies," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 904-933, December.
  9. Daniel Cohen & Jeffrey Sachs, 1985. "Growth and External Debt Under Risk of Debt Repudiation," NBER Working Papers 1703, National Bureau of Economic Research, Inc.
  10. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(2), pages 458-474, April.
  11. Easterly, William, 1999. "How did highly indebted poor countries become highly indebted? : reviewing two decades of debt relief," Policy Research Working Paper Series, The World Bank 2225, The World Bank.
  12. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers, International Monetary Fund 02/69, International Monetary Fund.
  13. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, Elsevier, vol. 29(3), pages 253-268, November.
  14. Ashoka Mody & Ratna Sahay & Thomas Helbling, 2004. "Debt Accumulation in the CIS-7 Countries," IMF Working Papers, International Monetary Fund 04/93, International Monetary Fund.
  15. Cole, Harold L & Kehoe, Patrick J, 1998. "Models of Sovereign Debt: Partial versus General Reputations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 55-70, February.
  16. Atkeson, A. & Ogaki, M., 1991. "Wealth-Varying Intertemporal Elasticities of Substitution Evidence from Panel and Aggregate Data," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 303, University of Rochester - Center for Economic Research (RCER).
  17. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
  18. Andrew Atkeson, 2010. "International lending with moral hazard and risk of repudiation," Levine's Working Paper Archive 200, David K. Levine.
  19. Reinhart, Carmen & Ostry, Jonathan, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany.
  20. Tito Cordella & Luca Antonio Ricci & Marta Ruiz-Arranz, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt Growth Link," IMF Working Papers, International Monetary Fund 05/223, International Monetary Fund.
  21. Yan Sun, 2004. "External Debt Sustainability in HIPC Completion Point Countries," IMF Working Papers, International Monetary Fund 04/160, International Monetary Fund.
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Cited by:
  1. Ales Bulir & Alma Romero-Barrutieta & Jose Daniel Rodríguez-Delgado, 2011. "The Dynamic Implications of Debt Relief for Low-Income Countries," IMF Working Papers, International Monetary Fund 11/157, International Monetary Fund.
  2. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany.
  3. Johansson, Pernilla, 2008. "Debt Relief, Investment and Growth," Working Papers, Lund University, Department of Economics 2008:11, Lund University, Department of Economics.

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