The external debt contribution to output,employment, productivity and consumption: A model and an application to Chile |
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| Institution: | 1. School of Automobile and Traffic Engineering, Liaoning University of Technology, Jinzhou 121000, China;2. Information systems Department, City University of Hong Kong, Hong Kong, 999077, China;1. International Monetary Fund, 1900 Pennsylvania Avenue, 20431 Washington, DC, USA;2. Bank of England, International Directorate, Threadneedle Street, London EC2R 8AH, UK |
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| Abstract: | A foreign-capital-dependent investment equation is used to generate capital stock series, towards estimating a non-homogeneous variable elasticity of substitution production function. Debt contributions are derived from here. For Chile between 1960 and 1982, a negative correlation between foreign capital and domestic savings, and a low marginal product of capital, account for minimal debt contributions. However, factor price distortions, capacity under-utilization, preferences for current consumption, short planning horizons combined with huge debt, unrealistically rigid assumptions of previous work and model limitations, all suggest substantial direct consumption costs of default or repudiation, and through them, indirect output and income costs. |
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