Factors Determining External Debt

Against the background of the international debt problem which originated with the oil shocks of the seventies, this book undertakes a theoretical analysis of the factors determining aggregate external debt, using the example of a raw material importing country. Instead of the usual static definition of the trade balance as the difference between the value of exports and imports in a single period, here an intertemporal approach is used with a country's current account balance determined as the difference between aggregate saving and aggregate net investment, variables which are primarily dependent on expectations about the future. The analysis is based on microeconomic optimization models which enables individual causal relationships to be presented in a detailed way, the "optimal" size of external debt to be determined and the desirability of an immediate adjustment in the level of debt following an external disturbance to be shown from a welfare point of view.

Contenu

1. Introduction.- 2. External Debt and The Balance On Current Account.- 2.1. The External Debt Position of a Single Country.- 2.2. A More Expensive Imported Raw Material and the Current Account Balance.- 2.3. The Current Account Balance as the Difference Between Aggregate Saving and Aggregate Net Investment.- 3. The Determinats of External Debt - The Basic Model of a Small Open Economy.- 3.1. The Structure of the Model.- 3.2. Determineants of the Present Value of Real Disposable Wealth.- 3.2.1. Changes in the Raw Material Price.- 3.2.2. A Change in the Level of the World Interest Rate.- 3.2.3. Influences Of Government Activity.- 3.3. Factors Determining External Debt.- 3.3.1. Changes in the Raw Material Price.- 3.3.2. A Change in the Level of the World Interest Rate.- 3.3.3. Other Factors that Influnces the Current Account Balance.- 3.3.4. Government Activity and External Debt.- 3.3.4.1. Constant Total Government Activity.- 3.3.4.2. Changes in Total Government Activity.- 3.3.4.3. The Level of Government Expenditure and Consumer Satisfaction.- Erroneous Expectations.- Summary of the Result of the Basic Model.- 4. Non-Traded Goods and the Balance on Current Account.- 4.1. The Structure of the Model.- 4.2. Determinants of the External Debt.- 4.2.1. Change in the Present Value of Available Real Wealth.- 4.2.2. Determinants of the current Account Balance.- 4.2.3. Determinants of Supply and Demand in the Market for Non-Trade Goods.- 4.3. Direct and Indirect Effects of a Change in the Raw Material Price on the Current Account Balance.- 4.3.1. Temporary Rise in the Raw Material Price.- 4.3.2. Expected Future Rise in the Raw Material Price.- 4.3.3. Permanent Rise in the Raw Material Price.- 4.3.4. The Non-Trared Good as a Pure Investment Good.- 4.4. Government Activity and the Balance on Current Account.- 4.4.1. Constant Total Government Activity.- 4.4.2. Increase in Total Government Activity.- 4.5. Labor Mobility in Period 2.- 4.6. Summary of the Results.- 5. External Debt in General Equilibrium Models.- 5.1. A Raw Material Exporting Country and a Raw Material Importing Country.- 5.1.1. The Structure of the Model.- 5.1.2. Wealth Changes in the Raw Material Exporting Country.- 5.1.3. Determinants of the Level of the World Interest Rate.- 5.1.4. The Structure of External Debt.- 5.1.5. Government Activity.- 5.2. Three Country Relationships.- 5.2.1. The Structure of the Model.- 5.2.2. Changes in Wealth.- 5.2.3. Factors Determining the Balance on Current Account in the Raw Material Importing Countries.- 5.2.4. Factors that Influence World Goods Markets.- 5.2.4.1. The Market for Good 1 in Period 1.- 5.2.4.2. The Market for Good 2 in Period 1.- 5.2.4.3. The Market for Good 1 in Period 2.- 5.2.5. Direct and Indirect Factors that Determine External Debt.- 5.2.5.1. Temporary Raw Material Price Rise.- 5.2.5.2. Expected Future Raw Material Price Rise.- 5.2.5.3. Permanent Raw Material Price Rise.- 5.2.6. Government Activity and the International Structure of External Debt.- 5.2.6.1. Temporary Increase in Government Demand for Good 1 in Country 1.- 5.2.6.2. Temporary Increase in Government Demand for Good 2 in Country 1.- 5.2.6.3. Permanent Increase in Government Demand for Good 1 in Country 1.- 5.3. Summary of the Results.- 6. An Extended Planning Horizon.- 6.1. The Structure of the Three Period Model.- 6.2. Change in Raw Materials Prices and Real Interest Rates within an Extended Planning Horizon.- 6.3. Expected and Unexpected Rises in Raw Material Prices.- 6.3.1. Expected Raw Material Price Rise.- 6.3.2. Unxpected Raw Material Price Rise.- 6.3.3. Welfare Losses from Unexpected Raw Material Price Rises.- 6.4. Inflexibilty Real Wages, Welfare and Tariffs on Imports.- 6.4.1. Inflexibility Real Wages with Unexpected Raw Materials Price Rises.- 6.4.2. Trariff and Subsidy Price with Imported Raw Materials.- 6.5. Summary of the Results.- 7. Conclusion.- Appendices.- Appendix to Chapter 3.- Appendix to Chapter 5.- Appendix to Chapter 6.