Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5067690 | European Economic Review | 2006 | 22 Pages |
Abstract
This paper considers a developing nation that faces a foreign exchange shortage and hence its demand for foreign goods is limited both by its income and its foreign exchange balance. Availability of international credit relaxes the second constraint. We develop a simple model of strategic interaction between lending institutions and firms, and show that the availability of international credit at concessionary rates can leave the borrowing nation worse off than if it had to borrow money at higher market rates. This 'paradox of benevolence' is then used to motivate a discussion of policies pertaining to international lending and the Southern government's method of rationing out foreign exchange to the importers.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Kaushik Basu, Hodaka Morita,