The Long-Run Creditworthiness of Developing Countries: Theory and Practice

Homi Kharas

The Quarterly Journal of Economics, 1984, vol. 99, issue 3, 415-439

Abstract: This paper analyzes the determinants of developing country long-run creditworthiness, focusing on the process of capital accumulation relative to external debt. Creditworthiness depends on the actual capital stock compared with a critical level, representing the gross wealth just sufficient to ensure that interest payments to foreigners never exhaust national output given expected gross inflows and existing outstanding debt. Hence, the probability of rescheduling is linked to debt service-capital, net inflows-capital, investment rates, and income levels. The empirical results, based on a probit analysis of historical rescheduling incidents, are quite robust and supportive of the theoretical framework.

Date: 1984
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