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

March 1, 2007

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Athanasios Vamvakidis. External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment?, (USA: International Monetary Fund, 2007) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: External debt, Financial crises, Public debt, Short term interest rates, Structural reforms

Keywords: Dummy variable, Economic crisis, Economic reform, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/050
Stock No:

WPIEA2007050
ISBN:

9781451866148
ISSN:

1018-5941

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