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Threshold Effects in International Lending

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  • Spiegel, Mark M.

Abstract

The author's dynamic model of international borrowing subject to credit constraint was developed for an economy with increasing returns to physical capital. Increases in the capital stock within the nonconvex range increase debtor borrowing opportunities. Conversely, a temporary liquidity shock may permanently lower the economy's growth path. Introducing aggregate nonconvexities also has different implications for policy on debt overhangs. In particular, the model allows for rational relending by creditors. It also predicts that new money ( or interest capitalization ) is in the interest of creditors and will be part of a debt restructuring strategy - as it was recently for Mexico and the Philippines.
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Suggested Citation

  • Spiegel, Mark M., 1991. "Threshold Effects in International Lending," Working Papers 91-17, C.V. Starr Center for Applied Economics, New York University.
    • Handle: RePEc:cvs:starer:91-17
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. W. Davis Dechert & Kazuo Nishimura, 2012. "A Complete Characterization of Optimal Growth Paths in an Aggregated Model with a Non-Concave Production Function," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 237-257, Springer.
    3. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-178, February.
    4. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472, National Bureau of Economic Research, Inc.
    5. Spiegel, Mark M, 1992. "Concerted Lending: Did Large Banks Bear the Burden?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(4), pages 465-482, November.
    6. Majumdar, Mukul & Mitra, Tapan, 1982. "Intertemporal allocation with a non-convex technology: The aggregative framework," Journal of Economic Theory, Elsevier, vol. 27(1), pages 101-136, June.
    7. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
    8. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Burguet, Roberto & Fernandez-Ruiz, Jorge, 1998. "Growth through taxes or borrowing? A model of development traps with public capital," European Journal of Political Economy, Elsevier, vol. 14(2), pages 327-344, May.

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    More about this item

    Keywords

    Models ; international barrowing ; capital ; credit;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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