Developing Country Borrowing from a Monopolistic Lender: Strategic Interaction and Endogenous Leadership

S. Jafarey and Sajal Lahiri

Working Papers from Department of Economics, City University London

Abstract: We develop a two-period model with endogenous investment and credit flows. Credit is subject to quantitative restrictions. With an exogenous restriction, we analyze the welfare effects of temporary tariffs. We then consider three scenarios under which a monopoly lender optimally decides the level of credit and a borrower country chooses an import tariff: one inwhich the two parties act simultaneously and two scenarios where one of them has a first-mover advantage. The equilibrium under the leadership of the borrower country is Pareto superior to the Nash equilibrium but may or may not be to that under the leadership of the lender. If the sequence of moves is itself chosen strategically, leadership by the borrower emerges as the unique equilibrium.

Keywords: Trade intervention; investment credit; credit constraints; credit control; leader-follower (search for similar items in EconPapers)
Date: 2005
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https://openaccess.city.ac.uk/id/eprint/1441/1/0506_jafarey-lahiri.pdf

Related works:
Journal Article: DEVELOPING COUNTRY BORROWING FROM A MONOPOLISTIC LENDER: STRATEGIC INTERACTIONS AND ENDOGENOUS LEADERSHIP* (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cty:dpaper:05/06

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