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International Credit and Welfare: Some Paradoxical Results with Implications for the Organization of International Lending

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Author Info
Basu, Kaushik (Cornell U)
Morita, Hodaka (U of New South Wales)

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Abstract

This paper models a developing nation that faces a foreign exchange shortage and hence its demand for foreign goods is limited both by its income and its foreign exchange balance. Availability of international credit relaxes the second constraint. It is shown that in this setting the availability of international credit at concessionary rates can leave the borrowing nation worse off than if it had to borrow money at higher market rates. This ‘paradox of benevolence’ is then used to motivate a discussion of policies pertaining to international lending and the Southern government’s method of rationing out foreign exchange to the importers.

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Paper provided by Cornell University, Center for Analytic Economics in its series Working Papers with number 01-05.

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Date of creation: Mar 2001
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Handle: RePEc:ecl:corcae:01-05

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Find related papers by JEL classification:
D60 - Microeconomics - - Welfare Economics - - - General
F30 - International Economics - - International Finance - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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  1. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier. [Downloadable!] (restricted)
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  2. Anant, T. C. A. & Basu, Kaushik & Mukherji, Badal, 1995. "A model of monopoly with strategic government intervention," Journal of Public Economics, Elsevier, vol. 57(1), pages 25-43, May. [Downloadable!] (restricted)
  3. Fernandez, Raquel & Glazer, Jacob, 1990. "The scope for collusive behavior among debtor countries," Journal of Development Economics, Elsevier, vol. 32(2), pages 297-313, April. [Downloadable!] (restricted)
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  4. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
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  5. Basu, K., 1991. "The International Debt Problem, Credit Rationing, and Loan Pushing: Theory and Experience," Princeton Studies in International Economics 70, International Economics Section, Departement of Economics Princeton University,.
  6. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
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