EconPapers    
Economics at your fingertips  
 

OPTIMAL FOREIGN BORROWING REVISITED

Hyeon-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
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/j.1468-5876.2009.00490.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

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
http://www.blackwell ... bs.asp?ref=1352-4739

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.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2020-09-08
Handle: RePEc:bla:jecrev:v:61:y:2010:i:3:p:367-381