Is History a Blessing or a Curse? International Borrowing without Commitment, Leapfrogging and Growth Reversals

Raouf Boucekkine () and Patrick Pintus

Working Papers from HAL

Abstract: We develop a simple open-economy AK model with collateral constraints that accounts for growth-reversal episodes, during which countries face abrupt changes in their growth rate that lead to either growth miracles or growth disasters. Absent commitment to investment by the borrowing country, imperfect contract enforcement leads to an informational lag such that the debt contracted upon today depends upon the past stock of capital. The no-commitment delay originates a history effect by which the richer a country has been in the past, the more it can borrow today. For (arbitrarily) small deviations from perfect contract enforcement, the history effect offsets the growth benefits from international borrowing and dampens growth, and it leads to leapfrogging in long-run levels. When large enough, the history effect originates growth reversals and we connect the latter to leapfrogging. Finally, we argue that the model accords with the reported evidence on growth disasters and growth accelerations. We also provide examples showing that leapfrogging and growth reversals may coexist, so that currently poor but fast-growing countries experiencing sharp growth reversals may end up, in the long-run, significantly richer than currently rich but declining countries.

Keywords: Growth Reversals; Leapfrogging; International Borrowing; Open Economies (search for similar items in EconPapers)
Date: 2010
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00535592
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://shs.hal.science/halshs-00535592/document (application/pdf)

Related works:
Working Paper: Is History a Blessing or a Curse? International Borrowing without Commitment, Leapfrogging and Growth Reversals (2010)
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:hal:wpaper:halshs-00535592

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().