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Donor herding and domestic debt crisis

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  • Yohane Khamfula
  • Montfort Mlachila
  • Ephraim Chirwa

Abstract

This article presents a new model based on the loan-pushing model by Basu (1991) to show how a domestic debt crisis can occur in a low-income country following donor herding. The model focuses on the rational herding behaviour of donors due to payoff and information externalities. Although there are many theoretical models on herding behaviour, these models have not formally considered the relationship between donor herding and domestic debt crisis in a low-income country. This article is an attempt to fill this gap. The article shows that due to donor herding behaviour a domestic debt crisis can occur once the actual debt level is above the desirable one.

Suggested Citation

  • Yohane Khamfula & Montfort Mlachila & Ephraim Chirwa, 2007. "Donor herding and domestic debt crisis," Applied Economics Letters, Taylor & Francis Journals, vol. 14(4), pages 299-302.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:4:p:299-302
    DOI: 10.1080/13504850500447356
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    Cited by:

    1. Ortiz, Isabel, & Cummins, Matthew. & Karunanethy, Kalaivani., 2015. "Fiscal space for social protection and the SDGs options to expand social investments in 187 countries," ILO Working Papers 994877663402676, International Labour Organization.
    2. Yohane Khamfula, 2006. "Fiscal uncertainty with donor herding and domestic debt crisis," Working Papers 07/2006, Stellenbosch University, Department of Economics.
    3. Fenny Marietza & Ridwan Nurazi & Fitri Santi & Saiful, 2021. "Bibliometric Analysis Of Herding Behavior In Times Of Crisis," Papers 2106.13598, arXiv.org.
    4. Isabel Ortiz & Jingqing Chai & Matthew Cummins, 2011. "Identifying Fiscal Space:Options for Social and Economic Development for Children and Poor Households in 184 Countries," Working papers 1108, UNICEF,Division of Policy and Strategy.

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