Open AccessOptimal saving and sustainable foreign debt
Author(s) -
Delano Villanueva,
Roberto S. Mariano
Publication year - 2021
Publication title -
thephilippine review of economics/the philippine review of economics
Language(s) - English
Resource type - Journals
eISSN - 2984-8156
pISSN - 1655-1516
DOI - 10.37907/9erp0202d
Subject(s) - economics , debt , productivity , consumption (sociology) , monetary economics , sustainable growth rate , emerging markets , external debt , small open economy , arrow , macroeconomics , finance , monetary policy , computer science , social science , sociology , programming language
This paper develops and discusses an open-economy growth model in a modi!ed Arrow learning-by-doing framework, in which workers learn through experience on the job, thereby increasing their productivity. Applying optimal control to maximize the discounted stream of intertemporal consumption, the model yields domestic saving rates of 18-22 percent of GDP, which are feasible targets in developing and emerging market economies. Sustainable gross foreign debt is in the range of 39-50 percent of GDP. Saving, debt, and growth policies are suggested.