Borrowing Abroad: the Debtor's Perspective

94 Pages Posted: 4 Apr 2004

See all articles by Richard N. Cooper

Richard N. Cooper

Harvard University - Department of Economics

Jeffrey D. Sachs

Columbia University - Columbia Earth Institute; National Bureau of Economic Research (NBER)

Date Written: August 1984

Abstract

This paper addresses the question of external borrowing from the perspective of the borrowing country. The first section sketches a formal framework for optimal borrowing by a developing country, as seen from the planner's point of view. The next three sections use this framework for the development of three important limits on external borrowing: the problem of solvency, the problem of liquidity and the problem created by the possibility of repudiation. The fifth section relates external borrowing to macroeconomic management of the borrowing country, and the sixth section pulls together the many factors that suggest that external debt of a country should be subject to central management or at least surveillance. Following that, we offer some guidelines for limits to the magnitude of external debt, and then discuss the character or mix of external debt. In an appendix, we present various simulation exercises for optimal debt management in a discrete-time infinite-horizon setting.

Suggested Citation

Cooper, Richard N. and Sachs, Jeffrey D., Borrowing Abroad: the Debtor's Perspective (August 1984). NBER Working Paper No. w1427. Available at SSRN: https://ssrn.com/abstract=327139

Richard N. Cooper

Harvard University - Department of Economics ( email )

Littauer Center
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Jeffrey D. Sachs (Contact Author)

Columbia University - Columbia Earth Institute ( email )

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National Bureau of Economic Research (NBER)

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