Sources of Debt Accumulation in a Small Open Economy

Author/Editor:

Abdelhak S Senhadji

Publication Date:

October 1, 1997

Electronic Access:

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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:

This paper analyzes the borrowing behavior of a small open economy of a developing country that relies heavily on imports for its capital formation and faces an upward-sloping supply function of foreign loans. Decision makers face uncertainty about the longevity of external shocks. That uncertainty generates forecast errors that lead to substantial debt accumulation. It is found that the assumption of an upward-sloping supply function of foreign loans, which is a more realistic formulation for developing countries than the usual perfect elasticity, offers an alternative to the Uzawa-type utility function for analyzing asset accumulation in the small open economy framework.

Series:

Working Paper No. 97/146

Subject:

English

Publication Date:

October 1, 1997

ISBN/ISSN:

9781451856606/1018-5941

Stock No:

WPIEA1461997

Format:

Paper

Pages:

26

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