 OPTIMAL FOREIGN BORROWING REVISITEDHyeon-seung Huh, Tadashi Inoue and Hyun-Hoon Lee The Japanese Economic Review, 2010, vol. 61, issue 3, 367-381 Abstract: Foreign capital has become increasingly important in financing investment and growth in developing countries. Foreign capital flows, however, can be volatile as is evident from the recent financial crises. It has also recently been noted by researchers that there is little systematic empirical evidence that foreign capital contributes to the economic growth of developing countries. In this context, this paper attempts to theoretically reevaluate the borrowing behaviour of a developing economy that relies on foreign borrowing for its capital formation. In particular, this paper investigates the implications of different lending policies of international financial institutions. It is found that no matter whether the borrowing interest rate increases with the level of foreign debt per capita or with the foreign‐capital/total‐capital ratio, the economy always moves toward the stationary state. The result holds even when the representative agent regards the interest rate given as constant. This implies that foreign borrowing does help economic growth, irrespective of lending policies of international financial institutions. Date: 2010 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jecrev:v:61:y:2010:i:3:p:367-381 Ordering information: This journal article can be ordered from Access Statistics for this article The Japanese Economic Review is currently edited by Akira Okada More articles in The Japanese Economic Review from Japanese Economic Association Contact information at EDIRC. |
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