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External Debt and International Trade: Another Mismatch

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  • Eiji Fujii

Abstract

Currency mismatch makes a debtor country suffer from domestic depreciation by magnifying the burden of its external debt. Because external debt can be repaid by exporting more than importing, a crucial channel for inducing recovery is net exports. However, the argument that domestic depreciation correspondingly boosts net exports is not warranted if currency compositions differ substantially between debt and trade. This study examines the association between the debt revaluation and trade competitiveness gain effects of exchange rate fluctuations for middle- and low-income countries. The empirical results suggest that currency-compositional discord between debt and trade has significant welfare implications.

Suggested Citation

  • Eiji Fujii, 2015. "External Debt and International Trade: Another Mismatch," CESifo Working Paper Series 5519, CESifo.
    • Handle: RePEc:ces:ceswps:_5519
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    References listed on IDEAS

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    More about this item

    Keywords

    currency mismatch; effective exchange rate; external debt; original sin; net export;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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