Foreign Borrowing and Export Promotion Policies

Eduardo Borensztein and Atish Ghosh ()
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Eduardo Borensztein: International Monetary Fund

IMF Staff Papers, 1989, vol. 36, issue 4, 904-933

Abstract: The problem of allocation of investment is an important issue for a debtor country facing a ceiling on the amount of foreign debt it can accumulate. The optimal solution is for the debtor country to create a more open economy by favoring investment in the export sector over investment in the import-competing sector. The reason is that a more open economy is more sensitive to trade sanctions and is therefore more creditworthy in international markets. Because international creditworthiness is basically an externality, policy can play a role in providing higher returns to export-producing activities.

Date: 1989
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