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Developing Country Borrowing From A Monopolistic Lender: Strategic Interactions And Endogenous Leadership

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  • SAQIB JAFAREY
  • SAJAL LAHIRI

Abstract

We develop a two‐period model with endogenous investment and credit flows. Credit is subject to quantitative restrictions. With an exogenous restriction, we analyse the welfare effects of a temporary consumption tax. We then consider three scenarios under which a monopoly lender optimally decides the level of credit and a borrower country chooses a consumption tax: one in which the two parties act simultaneously and two scenarios where one of them is a Stackleberg leader. The equilibrium under the leadership of the borrower country is Pareto superior to the simultaneous move equilibrium but may or may not be to that under the leadership of the lender. If the sequence of moves is itself chosen strategically, leadership by the borrower emerges as the unique equilibrium.

Suggested Citation

  • Saqib Jafarey & Sajal Lahiri, 2009. "Developing Country Borrowing From A Monopolistic Lender: Strategic Interactions And Endogenous Leadership," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 191-207, June.
    • Handle: RePEc:bla:jecrev:v:60:y:2009:i:2:p:191-207
    DOI: 10.1111/j.1468-5876.2008.00436.x
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    Cited by:

    1. Daisuke Hirata & Toshihiro Matsumura, 2011. "Price leadership in a homogeneous product market," Journal of Economics, Springer, vol. 104(3), pages 199-217, November.
    2. Sajal Lahiri & A. K. M. Mahbub Morshed, 2010. "Current Account Imbalances and Foreign Investment: A Theoretical Analysis of Interrelationships and Causalities," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 369-381, May.
    3. Luciano Fanti, 2017. "An Observable Delay Game with Unionised Managerial Firms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 64(1), pages 50-69, February.
    4. Subhayu Bandyopadhyay & Sajal Lahiri & Javed Younas, 2013. "Should Easier Access to Credit Replace Foreign Aid? A Trade-theoretic Analysis," Economics Bulletin, AccessEcon, vol. 33(3), pages 2320-2327.

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