TY  - JOUR
AU  - Cohen,Daniel
AU  - Sachs,Jeffrey
TI  - Growth and External Debt Under Risk of Debt Repudiation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1703
PY  - 1985
Y2  - September 1985
UR  - http://www.nber.org/papers/w1703
L1  - http://www.nber.org/papers/w1703.pdf
N1  - Author contact info:
Daniel Cohen
ENS-CEPREMAP
48, Boulevard Jourdan
75014 Paris
FRANCE
E-Mail: no email available

Jeffrey D. Sachs
The Earth Institute at Columbia University
314 Low Library
535 West 116th Street, MC 4327
New York, NY  10027
Tel: 212/854-8704
Fax: 212/854-8702
E-Mail: sachs@columbia.edu
M1  - published as Daniel Cohen, Jeffrey Sachs. "Growth and External Debt Under Risk of Debt Repudiation," in Georges de Ménil and Robert J. Gordon, editors, "International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics" Elsevier Science Publishers B.V., 1991 (1991)

AB  - We analyze the pattern of growth of a nation which borrows abroad and which has the option of repudiating its foreign debt. We show that the equilibrium strategy of competitive lenders is to make the growth of the foreign debt contingent on the growth of the borrowing country. We give a closed-form solution to a linear version of our model. The economy, in that case, follows a two-stage pattern of growth. During the first stage, the debt grows more rapidly than the economy. During the second stage, both the debt and the economy grow at the same rate, and more slowly than in the first stage. During this second stage, the total interest falling due on the debt is never entirely repaid; only an amount proportional to the difference of the rate of interest and the rate of growth of the economy is repaid each period.
ER  -