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External debt, time preference, and nontraded goods in a two-sector dynamic model of consumption

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  • Fathali Firoozi

Abstract

A number of studies have indicated that one of the consequences of a development process is a rise in the consumers' subjective time preference rate (discount rate). This study first shows that many of the adverse economic observations in developing countries can emerge from a rise in the discount rate. It then demonstrates that the extent of such adverse effects is related to relative shares of the tradable and nontradable sectors in aggregate consumption. A result is that the aggregate dissaving generated by a rise in the discount rate is smaller when the economy's nontradable sector is relatively larger. The results add new dimensions to the allocation policies applied by international lending insitutions in developing economies. Copyright Kluwer Academic Publishers 1995

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  • Fathali Firoozi, 1995. "External debt, time preference, and nontraded goods in a two-sector dynamic model of consumption," Open Economies Review, Springer, vol. 6(2), pages 167-178, April.
    • Handle: RePEc:kap:openec:v:6:y:1995:i:2:p:167-178
    DOI: 10.1007/BF01001235
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    References listed on IDEAS

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    1. Obstfeld, Maurice, 1990. "Intertemporal dependence, impatience, and dynamics," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 45-75, August.
    2. Buiter, Willem H, 1981. "Time Preference and International Lending and Borrowing in an Overlapping-Generations Model," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 769-797, August.
    3. Weil, Philippe, 1989. "Money, time preference and external balance," European Economic Review, Elsevier, vol. 33(2-3), pages 564-572, March.
    4. Kocherlakota, Narayana R., 1990. "On the 'discount' factor in growth economies," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 43-47, January.
    5. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-635, August.
    6. Sachs, Jeffrey D, 1990. "A Strategy for Efficient Debt Reduction," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 19-29, Winter.
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