Free Trade Zones and Outstanding Debt

Smita Nath

Foreign Trade Review, 2013, vol. 48, issue 2, 203-218

Abstract: The existing literature on international debt has analyzed the effects of different policies on the debt servicing problems of developing countries and these policies range from depreciation of the nominal exchange rate to creation of an export oriented trade regime. In a dynamic setting, this article analyzes the effects of yet another policy measure, namely creation of Free Trade Zones (FTZ), on the level of outstanding debt of an economy. Our analysis shows that in the short run, if skilled labour is a substitute for the imported input and foreign capital in the FTZ, then production incentives to the FTZ through reduction in tariff rate on the imported input used by this zone (while maintaining the rate for the rest of the economy) reduce the level of outstanding debt. In the long run, however, the effect of giving additional incentives to the FTZ on the level of outstanding debt crucially depends upon one additional factor namely, the responsiveness of fiscal deficit to the level of outstanding debt. The welfare of the country may also improve due to creation of an FTZ.

Keywords: Free trade zones; outstanding debt (search for similar items in EconPapers)
JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/0015732513481659 (text/html)

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:sae:fortra:v:48:y:2013:i:2:p:203-218

DOI: 10.1177/0015732513481659

Access Statistics for this article

More articles in Foreign Trade Review
Bibliographic data for series maintained by SAGE Publications ().