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| Tekijä: | Diwan, I. |
| Otsikko: | Linking trade and external debt strategies |
| Lehti: | Journal of International Economics
1990 : NOV, VOL. 29:3/4, p. 293-310 |
| Asiasana: | TRADE FOREIGN DEBTS BARGAINING WELFARE FINANCIAL MODELS CREDIT CONTROL CREDIT MANAGEMENT |
| Kieli: | eng |
| Tiivistelmä: | When a country's external debt exceeds some limit, new loans dry up, and default becomes more attractive. In the early 1980s the debt crisis locked creditor groups and many debtors in a bargaining game over the amounts of debt repayment. It is argued that for countries with a binding credit ceiling a policy of trade intervention increases welfare. The paper develops a model that allows the debtor country to choose rationally between two types of behaviour in a two-sector model. The choice depends on whether it is more profitable to increase the credit ceiling above inherited debts in order to borrow more, or to reduce it in order to repay less. When the latter strategy is optimal, partial debt forgiveness increases the creditors' payoff. |
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