External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment?

Athanasios Vamvakidis

No 2007/050, IMF Working Papers from International Monetary Fund

Abstract: Recent literature argues that conflict in shifting adjustment costs between different socioeconomic groups delays necessary reforms and finds that such reforms often follow economic crises. This paper expands these models by including external borrowing by the private sector and shows that this may lead to a further delay in economic reform. Empirical evidence based on a large panel of developing and emerging economies supports this argument and shows that the result is slower economic growth. External financing sometimes acts like a "pain reliever," postponing the much needed "treatment" of a "sick" economy by reform.

Keywords: WP; economic reform; dummy variable; economic crisis (search for similar items in EconPapers)
Pages: 27
Date: 2007-03-01
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Citations: View citations in EconPapers (16)

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