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A Debt Overhang Model for Low-Income Countries: Implications for Debt Relief

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Author Info
Junko Koeda

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Abstract

The paper presents a theoretical model to explain how debt overhang is generated in low-income countries and discusses its implications for debt relief. The paper indicates that the extent of debt overhang, and the effectiveness of debt relief, would depend on a recipient country's initial economic conditions and level of total factor productivity.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/224.

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Length: 22 pages
Date of creation: 16 Oct 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/224

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Related research
Keywords: Debt overhang ; debt relief ; participation constraint ; low-income countries ; dynamic programming ; Debt relief ; Low income developing countries ; Economic models ; Economic conditions ; Productivity ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Blackwell Publishing, vol. 48(2), pages 289-309, April. [Downloadable!] (restricted)
  2. 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)
    Other versions:
  3. Cohen, Daniel & Sachs, Jeffrey, 1986. "Growth and external debt under risk of debt repudiation," European Economic Review, Elsevier, vol. 30(3), pages 529-560, June. [Downloadable!] (restricted)
    Other versions:
  4. Vivian Z. Yue, 2005. "Sovereign Default and Debt Renegotiation," 2005 Meeting Papers 138, Society for Economic Dynamics. [Downloadable!]
  5. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November. [Downloadable!] (restricted)
    Other versions:
  6. Claessens, Stijn, et al, 1997. "HIPCs' Debt Review of the Issues," Journal of African Economies, Oxford University Press, vol. 6(2), pages 231-54, July.
  7. Ashoka Mody & Thomas Helnling & Ratna Sahay, 2004. "Debt Accumulation in the CIS-7 Countries: Bad Luck, Bad Policies, or Bad Advice," IMF Working Papers 04/93, International Monetary Fund. [Downloadable!]
  8. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July. [Downloadable!] (restricted)
  9. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June. [Downloadable!] (restricted)
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  10. Yan Sun, 2004. "External Debt Sustainability in HIPC Completion Point Countries," IMF Working Papers 04/160, International Monetary Fund. [Downloadable!]
  11. Reinhart, Carmen & Ostry, Jonathan, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany. [Downloadable!]
  12. Catherine A. Pattillo & Hélène Poirson & Luca Antonio Ricci, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  13. 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, vol. 39(1), pages 55-70, February.
  14. Marta Ruiz-Arranz & Tito Cordella & Luca Antonio Ricci, 2005. "Debt Overhang or Debt Irrelevance? Revisiting the Debt Growth Link," IMF Working Papers 05/223, International Monetary Fund.
  15. Jonathan David Ostry & Carmen Reinhart, 1991. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Working Papers 91/100, International Monetary Fund.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Johansson, Pernilla, 2008. "Debt Relief, Investment and Growth," Working Papers 2008:11, Lund University, Department of Economics. [Downloadable!]
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