Working Paper: NBER ID: w2582
Authors: Joshua Aizer; Eduardo R. Borensztein
Abstract: The purpose of this study is to identify conditions under which renewed international. lending will benefit both the developed and the developing countries. Our analysis will evaluate how the presence of terms of trade adjust-rent and distorted credit markets affect the conditions for the existence of beneficial lending. We demonstrate that in the presence of endogenous terms of trade adjustment, there are cases in which a competitive international banking system may not revitalize lending for investment purposes, even if such renewed lending is socially desirable, Renewed lending may require the appropriate conditionality, and the presence of endogenous terms of trade adjustment puts greater weight on investment conditionality.
Keywords: debt; conditionality; terms of trade; international lending
JEL Codes: F34; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| endogenous terms of trade adjustment (F14) | inhibit revitalization of lending for investment purposes (G21) |
| competitive international banking system (F65) | does not internalize terms of trade effects (F14) |
| marginal productivity of capital in developing countries > marginal productivity of capital in developed countries (O57) | existence of Pareto-improving contracts (D86) |
| interest rates in heavily indebted countries > interest rates in industrialized nations (F34) | condition satisfied for Pareto-improving contracts (D86) |
| lack of appropriate incentives or conditionality (F35) | marginal resource transfers will not occur (F16) |
| terms of trade deterioration (F14) | shift in the region of Pareto-improving contracts (D86) |
| shift in the region of Pareto-improving contracts (D86) | affect welfare of both debtor and creditor nations (F34) |
| effective conditionality and negotiation strategies (F51) | realizing beneficial lending outcomes (G21) |