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External Financing and Balance of Payments Adjustment in Developing Countries: Getting a Better Policy Mix

In: International Finance and the Developing Economies

Author

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  • Graham Bird

    (University of Surrey)

Abstract

There are a number of alternative strategies for dealing with current account balance of payments deficits. One is to ignore them altogether on the grounds that they do not matter. Here the argument is that in the long term the imbalance between domestic investment and savings, which the deficit reflects, will be automatically corrected and that, mindful of this, private external finance will be available to cover excess expenditure in the short term; net capital inflows will finance short-term net inward transfers of real resources. If, in long-run equilibrium, there is a close positive correlation between investment and saving across countries, net external financing will be merely a cyclical deviation from this.

Suggested Citation

  • Graham Bird, 2004. "External Financing and Balance of Payments Adjustment in Developing Countries: Getting a Better Policy Mix," Palgrave Macmillan Books, in: International Finance and the Developing Economies, chapter 2, pages 14-33, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59984-0_2
    DOI: 10.1057/9780230599840_2
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    References listed on IDEAS

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    1. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    2. Sebastian Edwards & Peter J. Montiel, 1989. "Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 875-903, December.
    3. W. Max Corden, 1991. "Does The Current Account Matter? The Old View And The New," Economic Papers, The Economic Society of Australia, vol. 10(3), pages 1-19, September.
    4. Tony Killick & Moazzam Malik, 1992. "Country Experiences with IMF Programmes in the 1980s," The World Economy, Wiley Blackwell, vol. 15(5), pages 599-632, September.
    5. Julio A. Santaella & Mr. Malcolm D. Knight, 1994. "Economic Determinants of Fund Financial Arrangements," IMF Working Papers 1994/036, International Monetary Fund.
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    Cited by:

    1. A. Sepehri & S. Moshiri & M. Doudongee, 2000. "The Foreign Exchange Constraints to Economic Adjustment: The case of Iran," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(2), pages 235-251.
    2. Graham Bird & Dane Rowlands, 2000. "The catalyzing role of policy-based lending by the IMF and the World Bank: fact or fiction?," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(7), pages 951-973.
    3. Graham Bird & Ramkishen S. Rajan, 2004. "Coping with, and Cashing in on, International Capital Volatility," Palgrave Macmillan Books, in: International Finance and the Developing Economies, chapter 11, pages 181-203, Palgrave Macmillan.

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