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Growth, Capital Accumulation and Foreign Debt
Author(s) -
Milbourne Ross
Publication year - 1997
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00060
Subject(s) - economics , debt , monetary economics , external debt , capital (architecture) , capital accumulation , debt to gdp ratio , population , productivity , interest rate , population growth , marginal product of capital , macroeconomics , capital formation , financial capital , market economy , human capital , demography , sociology , archaeology , history
This paper investigates the relationship between growth, population growth, capital accumulation and foreign debt. The paper uses an open economy neoclassical growth model to look at what macroeconomic forces explain why a number of countries accumulated (often unsustainable) debt and others did not. We show that a condition for debt stabilization relates the marginal propensity to consume out of wealth to the population growth rate and real rate of interest. The paper also shows that higher natural population growth must be associated with a higher level of net foreign debt per head, but that the same conclusion does not follow for higher rates of immigration, nor necessarily for higher rates of productivity growth. Finally, the paper characterizes a fiscal policy rule which if followed would prevent economies from entering debt traps following adverse shocks.