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External Debt and Economic Reform

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  • Athanasios Vamvakidis
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    Abstract

    Recent literature argues that conflict in shifting adjustment costs between different socioeconomic groups delays necessary reforms and finds that such reforms often follow economic crises. This paper expands these models by including external borrowing by the private sector and shows that this may lead to a further delay in economic reform. Empirical evidence based on a large panel of developing and emerging economies supports this argument and shows that the result is slower economic growth. External financing sometimes acts like a "pain reliever," postponing the much needed "treatment" of a "sick" economy by reform.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/50.

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    Length: 27
    Date of creation: 01 Mar 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/50

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    Related research

    Keywords: External debt; Economic growth; external borrowing; economic reform; foreign aid; external financing; property rights; private sector borrowing; foreign debt; fiscal reforms; debt accumulation; judiciary independence; debt overhang; public sector debt; debt ratios; external debt accumulation; public finance; courts; debt stock; debt servicing; foreign aid policy; judiciary; actual debt;

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    1. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
    2. Mariano Tommasi & Andres Velasco, 1996. "Where are we in the political economy of reform?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 187-238.
    3. Casella, Alessandra & Eichengreen, Barry, 1996. "Can Foreign Aid Accelerate Stabilisation?," Economic Journal, Royal Economic Society, vol. 106(436), pages 605-19, May.
    4. Michael Bruno & William Easterly, 1996. "Inflation's Children: Tales of Crises that Beget Reforms," NBER Working Papers 5452, National Bureau of Economic Research, Inc.
    5. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
    6. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 04/15, International Monetary Fund.
    7. Allan Drazen & William Easterly, 2001. "Do Crises Induce Reform? Simple Empirical Tests of Conventional Wisdom," Economics and Politics, Wiley Blackwell, vol. 13(2), pages 129-157, 07.
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    Cited by:
    1. Jesús Fernández-Villaverde & Luis Garicano & Tano Santos, 2013. "Political Credit Cycles: The Case of the Eurozone," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 145-66, Summer.
    2. Vamvakidis, Athanasios, 2009. "Is there a "reform fatigue" in the euro area?," Economic Modelling, Elsevier, vol. 26(4), pages 767-777, July.
    3. Bélyácz, Iván & Kuti, Mónika, 2009. "Külföldi működőtőke és külső eladósodás. Kísérlet a makrogazdasági tőkestruktúra új szempontú vizsgálatára
      [Foreign operating capital and foreign indebtedness. An attempt to exa
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 133-154.

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