Growth, debt, and sovereign risk in a small, open economy

The continuing debt crisis that many developing countries have faced in the current decade has underscored the need to understand the relationships between debt accumulation and growth, as well as the need to develop policy approaches that foster adjustment in the external account while maintaining the growth of output. The purpose of this paper is to develop a macroeconomic model for a small open developing economy that borrows abroad. This model will assist in studying the dynamic interaction between debt and growth, as well as the impact of various policies and exogenous shocks on the rate of capital accumulation, the current account and debt. From this analysis, the authors make the following conclusions. An upward shift in the supply of debt leads to a long run decline in external debt, a higher domestic interest rate, less capital stock, and a reduced trade surplus. An increase in the marginal cost of debt may or may not lower long run external debt as well. An increase in productivity raises the long run stock of capital but leaves the level of external debt and the interest rate unchanged in the long run. Finally, fiscal expansion has almost no effect in either the short run or the long run.Economic Theory&Research,Environmental Economics&Policies,Strategic Debt Management,Banks&Banking Reform,Financial Intermediation

Economic growth, trade and environmental quality in a two-region world economy

Cataloged from PDF version of article.This paper examines the linkages between international trade, environmental degradation, and economic growth, in a dynamic North-South trade game. The North produces manufactured goods by employing capital, labor, and a natural resource that it imports from the South, using a neoclassical production function subject to an endogenously improving technology. The South extracts the resource using raw labor, in the process generating local pollution. Genetic algorithms (GA) are used to search for optimal policies in the presence of local pollution and technology spillovers from North to South. In the GA search for optimal regional policies, both noncooperative and cooperative modes of trade are considered. Noncooperative trade results in inefficiencies stemming from externalities. Though cooperative trade policies are efficient, they lack credibility. A joint maximization of the global welfare shows that transfer of technology is a viable route to improve world welfare

International Emission Policy with Lobbying and Technological Change

I examine the implementation of emission policy in a union of countries. Production in any country incurs emissions that pollute all over the union, but efficiency in production can be improved by research and development (R&D). I compare four cases: laissez-faire, Pareto optimal policy, lobbying with centrally-determined emission quotas and lobbying with emission trade. The main findings are as follows. With emission quotas, the growth rate is socially optimal, but welfare sub-optimal. Emission trade speeds up growth from the initial position of laissez-faire, but slows down from the initial position of centrally-determined emission quotas

The Economic Adjustment Program for Portugal : assessing welfare impact in a heterogeneous-agent framework

The sovereign debt crisis, triggered by the 2007-08 global financial cri- sis, has affected several European Union (EU) countries, leading to unprecedented financial assistance programs. In May 2011, the Portuguese Government set an agreement with the Troika (a supranational institution composed by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF)), through which, in exchange for external help, the Portuguese author- ities committed to an Economic Adjustment Program (EAP). In order to assess the impacts of the EAP on welfare and, in particular, on inequality, this paper simulates the debt consolidation strategy proposed by the Troika using a general equilibrium model with heterogeneous agents. The model enables to explore the impacts of the fiscal adjustment on the endogenous cross-section distribution of income, wealth and welfare. Our results predict a positive net welfare gain, despite the existence of sig- nificant transition costs in terms of output losses and inequality, especially during the first years of implementation. Overall, the net positive welfare gains are biased towards the poorer, which means that the consolidation plan will be, in the end, equality-enhancing. These results reflect the instruments involved in the consolida- tion strategy: productive and unproductive expenditure cuts combined with a slight increase in social transfers. Furthermore, the simulation predicts a positive impact on the Portuguese net foreign asset (NFA) position. Assuming this prediction is correct, this strongly supports the motivation for the adoption of the Economic Adjustment Program which considers the large external indebtedness of Portugal as a central issue in the economic diagnosis.info:eu-repo/semantics/publishedVersio

Coordinated Tax-Tariff Reforms, Informality, and Welfare Distribution

The paper studies the revenue, efficiency, and distributional implications of a simple strategy of offsetting tariff reductions with increases in destination-based consumption taxes so as to leave consumer prices unchanged. We employ a dynamic micro-founded macroeconomic model of a small open developing economy, which features an informal sector that cannot be taxed, a formal agricultural sector, and an import-substitution sector. The reform strategy increases government revenue, imports, exports, and the informal sector. In contrast to Emran and Stiglitz (2005), who ignore the dynamic effects of taxes and tariffs on factor markets, we find an efficiency gain, which is unevenly distributed. Existing generations benefit more than future generations, who (depending on pre-existing tax and tariff rates and the informal sector size) even may become worse off