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Optimal International Borrowing Capital Allocation and Credit-Worthiness Control
Feder, Gershon | Just, Richard E.
Credit and Capital Markets – Kredit und Kapital, Vol. 12 (1979), Iss. 2 : pp. 207–220
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Feder, Gershon
Just, Richard E.
Abstract
Optimal International Borrowing, Capital Allocation and Credit-Worthiness Control
The paper develops a two-sector model of a growing economy, incorporating the relation between debt servicing capacity and the terms of credit facing the country. These terms are affected by macro-economic variables such as the volume of imports and exports, the size of foreign exchange reserves and the magnitude of debt service payments due on outstanding debt. The fact that importers, exporters and producers may be too small to take account of the impact their actions have on the economy’s terms of credit creates discrepancies between private and public optimal solutions. The model suggests that optimal growth may require export promotion while simultaneously taxing both private borrowing of foreign funds and importation of capital goods.