Developing Country Borrowing from a Monopolistic Lender: Strategic Interactions and Endogenous Leadership

17 Pages Posted: 20 May 2009

See all articles by Saqib Jafarey

Saqib Jafarey

University of Liverpool Management School (ULMS) - Economics Division

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Date Written: 2007-09-05

Abstract

We develop a two-period model with endogenous investment and credit flows. Credit is subject to quantitative restrictions. With an exogenous restriction, we analyse the welfare effects of a temporary consumption tax. We then consider three scenarios under which a monopoly lender optimally decides the level of credit and a borrower country chooses a consumption tax: one in which the two parties act simultaneously and two scenarios where one of them is a Stackleberg leader. The equilibrium under the leadership of the borrower country is Pareto superior to the simultaneous move equilibrium but may or may not be to that under the leadership of the lender. If the sequence of moves is itself chosen strategically, leadership by the borrower emerges as the unique equilibrium.

Suggested Citation

Jafarey, Saqib and Lahiri, Sajal, Developing Country Borrowing from a Monopolistic Lender: Strategic Interactions and Endogenous Leadership (2007-09-05). Japanese Economic Review, Vol. 60, Issue 2, pp. 191-207, June 2009. Available at SSRN: https://ssrn.com/abstract=1407306 or http://dx.doi.org/10.1111/j.1468-5876.2008.00436.x

Saqib Jafarey (Contact Author)

University of Liverpool Management School (ULMS) - Economics Division ( email )

Eleanor Rathbone Building
Bedford Street North
Liverpool L69 7ZA
United Kingdom

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

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