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Growth, External Debt Constraints and Budgetary Policies

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  • Dai, Meixing

Abstract

This paper extends MURPHY's (1991) analysis of alternative lending arrangements. We incorporate the capital accumulation into the two sector model and departure from traditional model of this kind by making two assumptions. One of them is to postulate rigid wage and unemployment, and the another is to assume sector-specic capital goods. We analyze then the long-run behavior and the short-run adjustment path for macroeconomic variables such as stock of external debt, real exchange rate, capital stocks, investment and private consumption of a small developing country in response to dierent budgetary policy changes under three alternative lending arrangements. The results suggest that, rst, the behavior of the economic system under total debt and debt-ratio arrangements are the same in the long-run and not very dierent in the short- and intermediate-run; secondly, the budgetary policies can have an inuence over the external debt in the short- and intermediate-run under the total debt ratio arrangement.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14001.

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Date of creation: Apr 1992
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Handle: RePEc:pra:mprapa:14001

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Related research

Keywords: Lending arrangement; creditworthiness; external debt; real exchange rate; capital accumulation;

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  1. Willem H. Buiter, 1986. "Structural and Stabilization Aspects of Fiscal and Financial Policy in the Dependent Economy," NBER Working Papers 2023, National Bureau of Economic Research, Inc.
  2. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  3. Engel, Charles & Kletzer, Kenneth, 1989. "Saving and Investment in an Open Economy with Non-traded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 735-52, November.
  4. Borensztein, Eduardo R., 1989. "Fiscal policy and foreign debt," Journal of International Economics, Elsevier, vol. 26(1-2), pages 53-75, February.
  5. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
  6. Murphy, Robert G., 1991. "Macroeconomic adjustment under alternative lending arrangements," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 103-127.
  7. Partha Sen & Stephen J. Turnovsky, 1988. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," NBER Working Papers 2781, National Bureau of Economic Research, Inc.
  8. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
  9. Matsuyama, Kiminori, 1991. "On exchange-rate stabilization," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 7-26.
  10. Ichiro Otani & Delano Villanueva, 1989. "Theoretical Aspects of Growth in Developing Countries: External Debt Dynamics and the Role of Human Capital," IMF Staff Papers, Palgrave Macmillan, vol. 36(2), pages 307-342, June.
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