TY  - JOUR
AU  - Engel,Charles
AU  - Kletzer,Kenneth M.
TI  - International Borrowing to Finance Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1865
PY  - 1986
Y2  - March 1986
UR  - http://www.nber.org/papers/w1865
L1  - http://www.nber.org/papers/w1865.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

Kenneth Kletzer
University of California, Santa Cruz
Department of Economics
217 Social Sciences 1
Santa Cruz, CA  95064
Tel: 408-459-3407
E-Mail: kkletzer@cats.ucsc.edu
AB  - The motives of a small country for borrowing to purchase capital equipment on international markets are studied. The country produces tradable capital and a nontradable consumption good and borrows or lends capital to achieve higher levels of welfare. A shift in time-preference favoring future over current consumption has an ambiguous impact effect on foreign debt. Whether the country lends or borrows immediately depends upon whether the consumption goods sector is capital or labor intensive. The dynamic behavior of the current account for an initially capital-poor country is also derived. Our results contrast with those of previous studies of optimal indebtedness in which consumables are borrowed directly.
ER  -