Title

Trade and Growth: A Theoretical Exploration into Foreign Debts by Nics

Publication Type

Journal Article

Publication Date

2000

Abstract

This paper studies foreign debts of newly industrializing countries (NICs). These countries develop by imitating foreign technology and by exporting goods that are lower down the [`]quality ladder'. Differentiated by quality differences, such goods are often substitutes to those exported by advanced countries in the West. As NIC incomes rise their consumers seek to smooth their consumption over time. The novelty of our finding is that NICs borrow from abroad only when these goods are substitutes, but they would not have done so had the goods been complements. The intuition, obvious yet ignored in the literature, is the opposite terms of trade effects arising from substitutes and complements in consumption. Most papers in the [`]growth-debt' literature adopted the Romer/Lucas steady-state framework. They concentrated on issues such as population growth and foreign debt, but neglected the imitation-growth-debt relation. A simple theoretical model is devised to fill this gap in the literature.

Discipline

Economic Theory

Research Areas

Economic Theory

Publication

Economic Modelling

Volume

17

Issue

1

First Page

35

Last Page

47

ISSN

0264-9993

Identifier

10.1016/s0264-9993(99)00019-x

Publisher

Elsevier

Additional URL

http://dx.doi.org/10.1016/s0264-9993(99)00019-x

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