External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment?
AbstractRecent 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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 07/50.
Date of creation: 01 Mar 2007
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