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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.

Suggested Citation

  • Dai, Meixing, 1992. "Growth, External Debt Constraints and Budgetary Policies," MPRA Paper 14001, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14001
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    File URL: https://mpra.ub.uni-muenchen.de/14001/1/MPRA_paper_14001.pdf
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    References listed on IDEAS

    as
    1. 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 735-752, November.
    2. Borensztein, Eduardo R., 1989. "Fiscal policy and foreign debt," Journal of International Economics, Elsevier, vol. 26(1-2), pages 53-75, February.
    3. Buiter, Willem H, 1988. "Structural and Stabilization Aspects of Fiscal and Financial Policy in the Dependent Economy," Oxford Economic Papers, Oxford University Press, vol. 40(2), pages 220-245, June.
    4. 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.
    5. Murphy, Robert G., 1991. "Macroeconomic adjustment under alternative lending arrangements," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 103-127.
    6. Matsuyama, Kiminori, 1987. "Current account dynamics in a finite horizon model," Journal of International Economics, Elsevier, vol. 23(3-4), pages 299-313, November.
    7. Matsuyama, Kiminori, 1991. "On exchange-rate stabilization," Journal of Economic Dynamics and Control, Elsevier, vol. 15(1), pages 7-26.
    8. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    9. Sen, Partha & Turnovsky, Stephen J, 1989. "Tariffs, Capital Accumulation, and the Current Account in a Small Open Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 811-831, November.
    10. J. P. Gould, 1968. "Adjustment Costs in the Theory of Investment of the Firm," Review of Economic Studies, Oxford University Press, vol. 35(1), pages 47-55.
    11. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321-321.
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    More about this item

    Keywords

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

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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