IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v29y2012i3p544-556.html
   My bibliography  Save this article

Optimal foreign debt for Egypt: A stochastic control approach

Author

Listed:
  • Abutaleb, Ahmed S.
  • Hamad, Marwa G.

Abstract

This study assesses the foreign debt policy in Egypt and contrasts it versus the optimal policy during the period 1985–2008. It also presents a forecast of the optimal debt during the period 2009–2014. The optimal debt policy was derived using an open economy model for Egypt. The uncertainties in the model stem from the uncertainties in the interest or debt service payments and the uncertainties in the rate of return on investments. The stochastic control approach was used to find the optimal debt policy. It was found that Egypt could borrow externally as long as the trend in the rate of return on investments exceeds the trend in the real interest rate or the trend in the rate of the debt service payments. The analysis finds that Egypt's foreign debt was higher than the optimal level before 1997. After 1997, foreign debt seems to converge to the optimal level. However, Egypt's foreign debt is still below its optimal level which results in an opportunity cost for the economy to grow, otherwise, GDP could have recorded a favorable increase.

Suggested Citation

  • Abutaleb, Ahmed S. & Hamad, Marwa G., 2012. "Optimal foreign debt for Egypt: A stochastic control approach," Economic Modelling, Elsevier, vol. 29(3), pages 544-556.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:544-556
    DOI: 10.1016/j.econmod.2011.12.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999311002835
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2011.12.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Stein, Jerome L., 2007. "United States current account deficits: A stochastic optimal control analysis," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1321-1350, May.
    3. Menoncin, Francesco, 2002. "Optimal portfolio and background risk: an exact and an approximated solution," Insurance: Mathematics and Economics, Elsevier, vol. 31(2), pages 249-265, October.
    4. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    5. Toan Quoc Nguyen & Mr. Benedict J. Clements & Ms. Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 2003/249, International Monetary Fund.
    6. Fleming, Wendell H. & Stein, Jerome L., 2004. "Stochastic optimal control, international finance and debt," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 979-996, May.
    7. Catherine Pattillo & Hélène Poirson & Luca Antonio Ricci, 2011. "External Debt and Growth," Review of Economics and Institutions, Università di Perugia, vol. 2(3).
    8. Ugo Panizza, 2008. "Domestic And External Public Debt In Developing Countries," UNCTAD Discussion Papers 188, United Nations Conference on Trade and Development.
    9. Eaton, Jonathan, 1993. "Sovereign Debt: A Primer," The World Bank Economic Review, World Bank, vol. 7(2), pages 137-172, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Amal Soliman ElGhouty, 2018. "Public Debt and Economic Growth in Egypt," Business and Economic Research, Macrothink Institute, vol. 8(3), pages 183-200, September.
    2. Virtue U. Ekhosuehi, 2021. "Optimal control of external debt for a developing economy," OPSEARCH, Springer;Operational Research Society of India, vol. 58(4), pages 889-905, December.
    3. Wei-han Liu, 2023. "Attaining stochastic optimal control over debt ratios in U.S. markets," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 967-993, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Naeem AKRAM*, 2017. "Role of Public Debt in Economic Growth of Sri Lanka: An ARDL Approach," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 27(2), pages 189-212.
    2. Imbs, Jean & Rancière, Romain, 2005. "The Overhang Hangover," CEPR Discussion Papers 5210, C.E.P.R. Discussion Papers.
    3. Talknice Saungweme & Nicholas M. Odhiambo, 2019. "Does Public Debt Impact Economic Growth in Zambia? An Ardl-Bounds Testing Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 69(4), pages 53-73, October-D.
    4. Marco Arnone & Luca Bandiera & Andrea Presbitero, 2005. "External Debt Sustainability: Theory and Empirical Evidence," International Finance 0512007, University Library of Munich, Germany.
    5. Mariam Camarero & Jesús Peiró-Palomino & Cecilio Tamarit, 2017. "External imbalances and growth," Working Papers 2017/02, Economics Department, Universitat Jaume I, Castellón (Spain).
    6. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany.
    7. Naeem Akram, 2013. "Empirical examination of debt and growth nexus in South Asian countries," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 20(2), pages 29-52, December.
    8. António Afonso & Yasfir Ibraimo, 2020. "The macroeconomic effects of public debt: an empirical analysis of Mozambique," Applied Economics, Taylor & Francis Journals, vol. 52(2), pages 212-226, January.
    9. Sen, Swapan & Kasibhatla, Krishna M. & Stewart, David B., 2007. "Debt overhang and economic growth-the Asian and the Latin American experiences," Economic Systems, Elsevier, vol. 31(1), pages 3-11, March.
    10. Siddique, Abu & Selvanathan, E.A. & Selvanathan, Saroja, 2016. "The impact of external debt on growth: Evidence from highly indebted poor countries," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 874-894.
    11. Haytham Y.M. Ewaida, 2017. "The Impact of Sovereign Debt on Growth: An Empirical Study on GIIPS versus JUUSD Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(2A), pages 607-633.
    12. Johansson, Pernilla, 2009. "Grants to needy countries? A study of aid composition between 1975 and 2005," Working Papers 2009:19, Lund University, Department of Economics.
    13. Serhan ÇIFTÇIOĞLU & Amin SOKHANVAR, 2018. "External Debt- Economic Growth Nexus in Selected CEE Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 85-100, December.
    14. Drine, Imed & Nabi, M. Sami, 2010. "Public external debt, informality and production efficiency in developing countries," Economic Modelling, Elsevier, vol. 27(2), pages 487-495, March.
    15. Andrea F Presbitero, 2012. "Total Public Debt and Growth in Developing Countries," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 24(4), pages 606-626, September.
    16. Ralf Hepp, 2005. "Can Debt Relief Buy Growth?," International Finance 0510003, University Library of Munich, Germany.
    17. Scott Régifère Mouandat, 2021. "Optimal debt in Gabon: an analysis in term of foreign currency compositions [La dette optimale au Gabon: une analyse en termes de composition en devises]," Post-Print hal-03326826, HAL.
    18. Saungweme, Talknice & Odhiambo, Nicholas M., 2020. "The Impact of Domestic and Foreign Public Debt on Economic Growth: Empirical Evidence from Zimbabwe," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(1), pages 77-106.
    19. Muhammed BENLI, 2020. "The effect of external debt on long run economic growth in developing economies: Evidence from heterogeneous panel data models with cross sectional dependency," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(624), A), pages 127-138, Autumn.
    20. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:544-556. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.