External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment?
IMF Working Papers, March 1, 2007
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- External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment?
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Bibliographic details
- Authors: Athanasios Vamvakidis
- Published: March 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451866148.001
Main research question and scope
- Investigates whether external borrowing by the private sector can delay necessary economic reform.
- Expands recent literature that links conflict over shifting adjustment costs between socioeconomic groups to delays in reform and observes that reforms often follow economic crises.
- Empirical analysis based on a large panel of developing and emerging economies.
Key findings
- External borrowing by the private sector may lead to a further delay in economic reform beyond delays caused by domestic redistribution conflicts.
- Empirical evidence supports the argument that external financing can act like a "pain reliever," postponing the much needed "treatment" of a "sick" economy by reform.
- The delay in reform associated with external borrowing is linked to slower economic growth.
Empirical evidence and methodology (as described)
- Uses a large panel of developing and emerging economies to test theoretical extensions that include private-sector external borrowing.
- Results from the panel analysis support the model predictions that external financing can postpone reforms and slow growth.
Subject areas and keywords
- Subject: External debt, Financial crises, Public debt, Short term interest rates, Structural reforms
- Keywords: dummy variable, economic crisis, economic reform, WP