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Optimal saving and sustainable foreign debt

Author

Listed:
  • Delano S. Villanueva

    (Bangko Sentral ng Pilipinas)

  • Roberto S. Mariano

    (University of Pennsylvania)

Abstract

This paper develops and discusses an open-economy growth model in a modi!ed Arrow learning-by-doing framework, in which workers learn through experience on the job, thereby increasing their productivity. Applying optimal control to maximize the discounted stream of intertemporal consumption, the model yields domestic saving rates of 18-22 percent of GDP, which are feasible targets in developing and emerging market economies. Sustainable gross foreign debt is in the range of 39-50 percent of GDP. Saving, debt, and growth policies are suggested.

Suggested Citation

  • Delano S. Villanueva & Roberto S. Mariano, 2020. "Optimal saving and sustainable foreign debt," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 57(2), pages 170-199, December.
  • Handle: RePEc:phs:prejrn:v:57:y:2020:i:2:p:170-199
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    File URL: https://pre.econ.upd.edu.ph/index.php/pre/article/view/1006/915
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    Keywords

    Neoclassical growth; open economy; learning-by-doing; optimal control; growth policies;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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