Developing country debt: implications for agricultural trade

There has been a sharp decline in the rate of economic growth in many developing countries in the 1980s compared with the 1970s. Reduced availability of external finance following the international debt crisis has been identified as one of the most important factors responsible for this decline. At the same time there has been a slowdown in the rate of growth of food imports to these countries, particularly to the highly indepted ones. The focus in the paper is on the implications for international agricultural commodity markets of a dept write‐off in developing countries. To analyse these implications a world agricultural trade model is used. Specifically, the analysis covers the effect of existing debt on the permanent incomes of developing debtor countries and developed creditor countries, and hence the effect on agricultural commodity markets. The results indicate that, if the debts of the developing countries were written off, prices would improve in consequence of the resulting rise in their permanent incomes. If the debt write‐off also led to growth in developing countries returning to the levels prevalent before the debt crisis, the improvements in world prices would be likely to be much larger.