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Immiserizing Capital Flows to Developing Countries

Author

Listed:
  • Bender, Dieter
  • Löwenstein, Wilhelm

Abstract

Based on a neoclassical growth model for open low income economies this paper shows that development strategies, which rely on net borrowing abroad lead to a position of sustainable foreign indebtedness (provided that all capital imports are used for investment financing), but turn out to be immiserizing. The paper proves that development financing by foreign loans is either ineffective in terms of increasing per capita income but associated by sustainable foreign debts, or the effectiveness is bought at the price of growing into unsustainable debt positions. The first option is stable but counterproductive. The second option is effective but unstable.

Suggested Citation

  • Bender, Dieter & Löwenstein, Wilhelm, 2014. "Immiserizing Capital Flows to Developing Countries," IEE Working Papers 201, Ruhr University Bochum, Institute of Development Research and Development Policy (IEE).
    • Handle: RePEc:zbw:ieewps:201
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    File URL: https://www.econstor.eu/bitstream/10419/183555/1/wp-201.pdf
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    Cited by:

    1. Sadik-Zada, Elkhan Richard & Gatto, Andrea, 2019. "Determinants of the Public Debt and the Role of the Natural Resources: a Cross-Country Analysis," ETA: Economic Theory and Applications 285026, Fondazione Eni Enrico Mattei (FEEM).

    More about this item

    Keywords

    Immioserizing growth; Foreign debt; Low income countries;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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