Capital Accumulation, External Indebtedness and Macroeconomic Performance of Emerging Countries
AbstractThis paper aims at presenting a non-linear post-keynesian growth model to evaluate at theoretical and empirical level the relationship between external indebtedness and economic growth in emerging countries. For this intent, it is presented a post-keynesian endogenous growth model in which: i) desired rate of capital accumulation is supposed to be a non-linear function of external indebtedness as share of capital stock; ii) there is an endogenous country risk premium, which is supposed to be an increasing (linear) function of the external indebtedness (as a share of capital stock); iii) there is a fixed exchange rate regime and perfect capital mobility in the sense of Mundell and Fleming. The main theoretical result of the model is the existence of two long-run equilibrium positions, one of them with a high level of external indebtedness (as a ratio of capital stock) and a low profit rate and the other with a low level of external indebtedness and a high profit rate. This means that an “excessive” external indebtedness can result in a stagnant growth due to its negative effect over the rate of profit. To test the effects of external indebtedness over the rate of economic growth in emerging economies, it is estimated a dynamic panel which evaluates if external debt has an effective negative impact over economic growth of emerging countries. The empirical test of demand-led growth equations with a dynamic panel for 55 emerging countries confirms the potential negative effects of external debt over the long-run rate of growth of the countries in the sample. Moreover, it was detected a hump-shaped relation between external debt and economic growth for the countries in the sample, but the positive effect of external debt over economic growth will only occur for negative values of this variable. This means that, according to the empirical model, any positive level of external debt is harmful for economic growth of emerging countries. Economic growth can be maximized only for a negative value of external debt, i.e. only if a country became a net creditor in international markets. This requires the running of persistent current account surpluses by emerging countries.
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Bibliographic InfoPaper provided by Departamento de Economia da Universidade de Brasilia in its series Working papers - Textos para Discussao do Departamento de Economia da Universidade de Brasilia with number 338.
Length: 32 pages
Date of creation: Nov 2010
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External debt; balance of payments; and capital accumulation;
Other versions of this item:
- Marcos Rocha & José Luis Oreiro, 2013. "Capital accumulation, external indebtedness, and macroeconomic performance of emerging countries," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 35(4), pages 599-620, July.
- Felissa Silva de Sousa Marques & José Luis Oreiro & MarcosRocha, 2011. "Capital Accumulation,External Indebtedness and Macroeconomic Performance of EmergingCountries," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 108, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
- O2 - Economic Development, Technological Change, and Growth - - Development Planning and Policy
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- Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
- Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Oxford University Press, vol. 32(2), pages 273-288, March.
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