Sustainable External Debt Levels: Estimates for Selected Asian Countries
AbstractHigh ratios of external debt to GDP in selected Asian countries have contributed to the initiation, propagation, and severity of the financial and economic crises in recent years, reflecting runaway fiscal deficits and excessive foreign borrowing by the private sector. Applying the formal framework proposed by Villanueva (2003) to a selected group of Asian countries, the research estimates the external debt thresholds beyond which further debt accumulation will have negative effects on growth and will become unsustainable. The framework is an extension of the standard neoclassical growth model that incorporates global capital markets. ‘Sustainability’ is measured in terms of the steady-state ratio of the stock of external debt to GDP, as functions of real world interest rates, risk spreads and their responsiveness to external debt burdens and market perceptions of country risk, marginal propensities to save out of national disposable income and foreign borrowing, rates of technical change, and parameters of the production function. The major policy implications are that in the long run, fiscal consolidation and the promotion of private saving are critical, and that reliance on foreign saving in a globalized financial world has limits, particularly when the risk spreads are positively correlated with rising external debt levels.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Singapore Management University, School of Economics in its series Working Papers with number 07-2005.
Length: 26 pages
Date of creation: Mar 2005
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Other versions of this item:
- Roberto Mariano & Delano Villanueva, 2005. "Sustainable External Debt Levels : Estimates for Selected Asian Countries," Macroeconomics Working Papers 22468, East Asian Bureau of Economic Research.
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-FMK-2006-09-30 (Financial Markets)
- NEP-SEA-2006-09-30 (South East Asia)
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.:
- Luis A. Rivera-Batiz & Paul M. Romer, 1991.
"International Trade with Endogenous Technological Change,"
NBER Working Papers
3594, National Bureau of Economic Research, Inc.
- Rivera-Batiz, Luis A. & Romer, Paul M., 1991. "International trade with endogenous technological change," European Economic Review, Elsevier, vol. 35(4), pages 971-1001, May.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
- Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
- Paul M Romer, 1999.
"Increasing Returns and Long-Run Growth,"
Levine's Working Paper Archive
2232, David K. Levine.
- Delano Villanueva, 1994. "Openness, Human Development, and Fiscal Policies: Effects on Economic Growth and Speed of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 41(1), pages 1-29, March.
- Gary S. Becker & Kevin M. Murphy & Robert Tamura, .
"Human Capital, Fertility, and Economic Growth,"
University of Chicago - Population Research Center
90-5a, Chicago - Population Research Center.
- Becker, Gary S & Murphy, Kevin M & Tamura, Robert, 1990. "Human Capital, Fertility, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S12-37, October.
- Gary S. Becker & Kevin M. Murphy & Robert Tamura, 1994. "Human Capital, Fertility, and Economic Growth," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 323-350 National Bureau of Economic Research, Inc.
- Gene M. Grossman & Elhanan Helpman, 1989.
"Comparative Advantage and Long-Run Growth,"
NBER Working Papers
2809, National Bureau of Economic Research, Inc.
- Roberto S. Mariano & Delano Villanueva, 2005.
"External Debt, Adjustment, and Growth,"
13-2006, Singapore Management University, School of Economics, revised May 2006.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (QL THor).
If references are entirely missing, you can add them using this form.