Sustainable External Debt Levels: Estimates for Selected Asian Countries

High ratios of external debt to GDP in selected Asian countries have contributed to the initiation, propagation, and severity of the financial and economic crises in recent years, reflecting runaway fiscal deficits and excessive foreign borrowing by the private sector. Applying the formal framework...

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Main Author: Mariano, Roberto S.
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Language:English
Published: Institutional Knowledge at Singapore Management University 2005
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Online Access:https://ink.library.smu.edu.sg/soe_research/844
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spelling sg-smu-ink.soe_research-18432010-09-23T05:48:03Z Sustainable External Debt Levels: Estimates for Selected Asian Countries Mariano, Roberto S. High ratios of external debt to GDP in selected Asian countries have contributed to the initiation, propagation, and severity of the financial and economic crises in recent years, reflecting runaway fiscal deficits and excessive foreign borrowing by the private sector. Applying the formal framework proposed by Villanueva (2003) to a selected group of Asian countries, the research estimates the external debt thresholds beyond which further debt accumulation will have negative effects on growth and will become unsustainable. The framework is an extension of the standard neoclassical growth model that incorporates global capital markets. ‘Sustainability’ is measured in terms of the steady-state ratio of the stock of external debt to GDP, as functions of real world interest rates, risk spreads and their responsiveness to external debt burdens and market perceptions of country risk, marginal propensities to save out of national disposable income and foreign borrowing, rates of technical change, and parameters of the production function. The major policy implications are that in the long run, fiscal consolidation and the promotion of private saving are critical, and that reliance on foreign saving in a globalized financial world has limits, particularly when the risk spreads are positively correlated with rising external debt levels. 2005-06-01T07:00:00Z text https://ink.library.smu.edu.sg/soe_research/844 Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Economic Theory Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Economic Theory
Finance
spellingShingle Economic Theory
Finance
Mariano, Roberto S.
Sustainable External Debt Levels: Estimates for Selected Asian Countries
description High ratios of external debt to GDP in selected Asian countries have contributed to the initiation, propagation, and severity of the financial and economic crises in recent years, reflecting runaway fiscal deficits and excessive foreign borrowing by the private sector. Applying the formal framework proposed by Villanueva (2003) to a selected group of Asian countries, the research estimates the external debt thresholds beyond which further debt accumulation will have negative effects on growth and will become unsustainable. The framework is an extension of the standard neoclassical growth model that incorporates global capital markets. ‘Sustainability’ is measured in terms of the steady-state ratio of the stock of external debt to GDP, as functions of real world interest rates, risk spreads and their responsiveness to external debt burdens and market perceptions of country risk, marginal propensities to save out of national disposable income and foreign borrowing, rates of technical change, and parameters of the production function. The major policy implications are that in the long run, fiscal consolidation and the promotion of private saving are critical, and that reliance on foreign saving in a globalized financial world has limits, particularly when the risk spreads are positively correlated with rising external debt levels.
format text
author Mariano, Roberto S.
author_facet Mariano, Roberto S.
author_sort Mariano, Roberto S.
title Sustainable External Debt Levels: Estimates for Selected Asian Countries
title_short Sustainable External Debt Levels: Estimates for Selected Asian Countries
title_full Sustainable External Debt Levels: Estimates for Selected Asian Countries
title_fullStr Sustainable External Debt Levels: Estimates for Selected Asian Countries
title_full_unstemmed Sustainable External Debt Levels: Estimates for Selected Asian Countries
title_sort sustainable external debt levels: estimates for selected asian countries
publisher Institutional Knowledge at Singapore Management University
publishDate 2005
url https://ink.library.smu.edu.sg/soe_research/844
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