TY  - JOUR
AU  - Gertler,Mark
AU  - Rogoff,Kenneth
TI  - Developing Country Borrowing and Domestic Wealth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2887
PY  - 1989
Y2  - March 1989
UR  - http://www.nber.org/papers/w2887
L1  - http://www.nber.org/papers/w2887.pdf
N1  - Author contact info:
Mark Gertler
Department of Economics
New York University
269 Mercer Street, 7th Floor
New York, NY 10003
Tel: 212/998-8931
Fax: 212/995-4186
E-Mail: mark.gertler@nyu.edu

Kenneth S. Rogoff
Thomas D Cabot Professor of Public Policy
Economics Department
Harvard University
Littauer Center 216
Cambridge, MA 02138-3001
Tel: 617-495-4022
Fax: 617/495-7730
E-Mail: krogoff@harvard.edu
AB  - We show that across developing countries, external debt to private creditors rises more than proportionately with income. We then develop a simple theoretical model consistent with this phenomenon and also consistent with the well-documented relationship between capital market development and growth. Our framework stresses information asymmetries at the level of individual borrowers as the source of frictions in world capital markets. Because of moral hazard problems, marginal products of capital and borrowing-lending spreads are higher in poorer countries. In a two-country version of the model, we demonstrate the possibility of a siphoning effect which exacerbates the costs of transfers. Also because of the siphoning effect, increased wealth in the rich country can stunt investment in the poor country.
ER  -