Foreign Borrowing and Export Promotion Policies

International Monetary Fund

No 1989/016, IMF Working Papers from International Monetary Fund

Abstract: This paper considers the problem of allocation of investment for a debtor country that faces a ceiling on the amount of foreign debt it can accumulate. It shows that it is optimal 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 therefore more creditworthy in international markets. Because international creditworthiness is basically an externality, there is a role for policy to provide higher returns to export producing activities.

Keywords: WP; mn mathvariant; debtor country; interest rate; export sector; credit ceiling; credit supply function; investment adjustment; export promotion policy; Exports; Credit; Credit ceilings; Imports (search for similar items in EconPapers)
Pages: 46
Date: 1989-01-01
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1989/016

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