This posting
shows similarities between text in Dr. Douglas Agbetsiafa’s doctoral thesis and
writing by other, earlier published, authors.
Dr. Agbetsiafa’s thesis is titled “External Resource Utilization and
Debt-Management Problems in Ghana”, and was submitted for a doctorate of
economics at the University of Notre Dame in 1980. Dr. Agbetsiafa is now Professor and Chair of
Economics at Indiana University South Bend (IUSB).
The comparisons
that follow show text taken directly form Dr. Agbetsiafa’s doctoral thesis
versus text with the works of others that have largely similar wording. Note that multiple instances of similar
wording occur between Dr. Agbestiafa’s thesis and a source that does not appear
to be mentioned at all in his thesis, namely the following book: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977). Also,
no mention is made in the thesis of the following article, which has several
paragraphs in common with Dr. Agbetsiafa’s thesis: Garg, R.C. (1977) Debt Problems of
Developing Countries. Intereconomics, 12(3-4): 93-97.
From page 22 of
Agbetsiafa’s doctoral thesis:
This will
imply purchasing of goods abroad that the debtor country cannot produce
efficiently at home, and also being in position to translate the surplus of
domestic savings over domestic investment requirements into foreign exchange
without much difficulty. Thus, if if [sic] the international demand for the
products of the debtor country rises only sluggishly, or if domestic production
is not competitive, or if export sales fluctuate persistently, the country will
experience limits on the rate of savings surplus that is needed for
debt-service payments.
Compare this to Avramovic (1964):
… translate
the surplus of domestic savings over domestic investment requirements into
foreign exchange without much difficulty. If international demand for the
products of the debtor country rises only sluggishly, or if domestic production
is not competitive, or if export sales fluctuate persistently, this country
will experience limits on the rate of real income growth that it can sustain
over time and hence on the savings surplus that is needed for debt servicing
abroad.
From page 23 of
Agbetsiafa’s doctoral thesis:
The
procedure involves a short-term balance of payments forecast designed to show
the degree of strain on the balance of payments in a hypothetical future
two-year period in which export earnings are assumed to taper off to the
maximum extent which can reasonably be expected in the individual debtor
country.
Compare this to
Avramovic (1964), within Introduction:
… involves a
short-term balance of payments forecast designed to show the degree of strain
on the balance of payments in a hypothetical future two-year period in which
export earnings are assumed to fall off to the maximum extent which can
reasonably be expected in the country concerned.
From page 32 of Agbetsiafa’s
doctoral thesis:
The
pioneering article integrating foreign finance as an additional factor of
production into a model of the development process was published in 1966 by
Hollis Chenery and Alan Strout.[6] Although its simplistic reliance on
projections of growth based solely on an aggregate capital output ratio has
been severely criticized, it remains a basic framework of analysis; and
subsequent use of its terminology, especially in a disaggregated form, provides
a basis for useful research. It has also been the bais [sic] of global
estimates by international bodies of the time and foreign resources required for
developing countries to achieve self-sustaining growth.
[7] Chenery,
H. B. and Strout, A.M, "Foreign Assistance and Economic Development,"
American Economic Review
(September 1966), Vol. 56, pp. 6789-733.
[Note:
reference at bottom of page appears to be mis-numbered]
Compare this to Newlyn
(1977), page 93:
This chapter can be developed conveniently within the framework of the·
pioneering article integrating foreign finance 'as an additional factor of
production' into a model of the development process by Hollis Chenery and Alan
Strout, published in 1966.[1] Although its simplistic reliance on projections
of growth based solely on an aggregate capital output ratio have been severely
criticized,[2] it remains a basic analytical instrument and subsequent use of
its technology, especially in a disaggregated form,[3] has given rise to useful
research. It has also been the basis of global estimates by international
bodies of the time and foreign res6urces required for developing countries to
achieve 'self-sustaining growth'.
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From page 33
Agbetsiafa’s doctoral thesis:
The model
is based on the identification of three constraints on the rate of growth: the
capacity consstraint, [sic] the savings constraint, and external trade
constraints. The objective of the analysis is to estimate the extent to which
foreign finance can remove constraints, how long the process will take, and how
much external finance will be required. Two important assumptions are implicit
in the specification; namely, that all of the foreign finance is in the form of
grants and that it is one hundred percent effective in raising the investment rate
and, hence, the growth rate. Furthermore, it is assumed that there is
sufficient foreign finance in this form to overcome the constraints specified
above in the successive stages in which they operate. These assumptions are
purely theoretical but necessary for the purpose of investigating the full
extent to which foreign finance can contribute to the acceleration of the
income growth rate of developing countries. The model is highly linear in
conception and relies exclusively on the automatic effect of capital
investments increasing growth via the capital-output ratio.
Compare
this to Newlyn (1977), pages 93 and 94:
The model
is based on the identification of three constraints on the rate of growth: 1.
the capacity constraint; 2. the savings constraint; 3. the external trade
constraint; and the objectives were to estimate the extent to which foreign
finance can remove constraints, how long the process will take, and how much
external finance will be required. Two important hypothetical assumptions are
implicit in the specification, namely that all of the foreign finance is in the
form of grants and that it is one hundred per cent effective in raising the
investment rate, and hence the growth rate. Furthermore, it is assumed that
there is sufficient foreign finance in this form to overcome the constraints
specified above in the successive stages in which they operate.
These
assumptions are purely hypothetical but are necessary for the purpose of
investigating the full extent to
which foreign finance can contribute to the acceleration of the income growth
rate of the poor countries. The model is highly linear in conception and
exclusively reliant on the automatic effect of capital investment increasing growth
via the capital output ratio but because of the wide currency of such
projections they must be examined on their own terms.
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From Agbetsiafa’s
doctoral thesis, bottom of page 33, page 34, and top of page 35:
In the
first phase of development it is visualized that the rate at which investment
can be increased is limited by the absence of appropriate cooperating factors and
therefore only that amount of external resource can be absorbed as is
consistent with raising the investment rate at a constrained rate. This phase
lasts until the target rate of investment is achieved which, given the capital-output
ratio, will be associated with a substantial increase in income. In this second
phase, the gap between savings and the target rate of investment is being closed
by external resources and the condition required for the termination of th.is
phase is that the marginal savings rate must exceed the target rate of
investment in order that rising income eventually enable national savings to
finance investments at the target rate. If this phase were to be completed
without the emergence of external trade limit, this constraint would almost
certainly constitute a third phase, because with the reduction in external
resources during the second phase, the gap between exports and imports which it
had previously financed would open up. Thus the trade gap will either take over
as the binding constraint during the second phase, or it will succeed it and
will persist unless the rate of growth of exports exceeds the rate of imports
by more than the reduction in foreign finance. This possibility of overlap
between the trade constraint and the savings constraint has led to a
considerable amount of literature on two-gap models, and in particular to
methods of determining which gap is binding ex-ante, in spite of the fact that
ex-post they must be equal because the excess of imports over exports is equal to
external resource inflow.
Compare this to Newlyn
(1977) page 94:
In the
first phase of development it is visualized that the rate at which investment
can be increased is limited by the absence of appropriate co-operating factors
and therefore only that amount of aid can be absorbed as is consistent with
raising the investment rate at a constrained rate. This phase lasts until the
target rate of investment is achieved which, given the capital/output ratio,
will be associated with a substantial increase in income per head. In this second
phase the gap between savings and the target rate of investment is being closed
by foreign aid and the condition required for the termination of this is that
the marginal savings rate must exceed the target rate of investment in order
that rising income should eventually enable national savings to finance
investment at the target rate. If this phase were to be completed without the
emergence of the external trade limit this constraint would almost certainly
constitute a third phase because, with the reduction in aid during the second
phase, the gap between exports and imports which it had previously financed would
open up. Thus the trade-limited phase will either take over as the binding
constraint during the second phase or it will succeed it, and will persist
unless the rate of growth of exports exceeds the rate of growth of imports by
more than the reduction in foreign finance.
This possibility of overlap between the trade constraint and
the savings constraint has led to a considerable literature on 'two gap models'
and in particular to methods of determining which gap is binding ex ante, in
spite of the fact that ex post they must be equal because the excess of
investment over savings and the excess of imports over exports are both equal
to the inflow. …
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From page 35 and
top of page 36 of Agbetsiafa’s doctoral thesis:
The
Chenery-Strout model was applied to thirty-one countries using United Nations
and International Monetary Fund (IMF) statistics for the period 1957 to 1962.
The median values of the crucial parameters for that period were a marginal
propensity to save 0.19 and an incremental capital-output ratio 3.52. Assuming
that the trade constraint does not operate, these values would imply that a country
starting from an initial savings level of 0.08, which is the bottom of the
distribution, would take forty-five years to achieve self-sustaining growth at
a five percent growth rate. A similar projection (using the same kind of model)
was made by the Commission of International Development established by the
World Bank--the Pearson Commision.[8] The three basic assumptions of this
commission's projections were: (1) that the total flow of financial resources
(net of repayment of loans) to the developed countries will reach the target of
one percent of the gross national products of the developed countries belonging
to the Development Assistance Committee by 1975; (2) there will be a simultaneous increase in official development
assistance--concessionary loans and grants--to 0.7 percent of the base; (3) the
Commission assumed that there would be more favorable terms for official loans.
The conclusion derived from these assumptions is that the majority of
developing countries will be able to reach self-sustaining growth by the end of
the present centiry.[sic] Self sustaining growth in this context
is the point at which a country is able to finance from its own resources the
amount of investment required to maintain a target rate of growth of national
product of six percent.
Compare this to
pages 94-95 of Newlyn (1977):
The Chenery/Strout model was applied to thirty-one countries using United
Nations and I.M.F. statistics for the period 1957 to 1962. The median values of
the crucial parameters for that period were: the marginal propensity to save 0.19
and the incremental capital/output ratio 3.52. Assuming that the trade
constraint does not operate, these values would imply that a country starting
from an initial savings level of 0.08, which is the bottom of the distribution,
would take forty-five years to achieve self-sustaining growth at a 5 per cent
growth rate.
A similar projection (using the same kind of model) was made
by the Commission of International Development set up by the World Bank (the
Pearson Commission) which reported in 1969.[4] The three basic assumptions of
the Pearson Commission's projections are: 1. that the total flow of financial
resources (net of repayment of loans) to the developed countries will reach the
target of one per cent of the gross national products of the developed
countries belonging to the Development Assistance Committee by 1975; 2. that
there will be a simultaneous increase in official development assistance (
concessionary loans and grants) to 0.7 per cent of the same; and 3. That there
should be more favourable terms for official loans. The conclusion derived from
these assumptions is that it will enable the majority of developing countries
to reach 'self-sustaining growth' by the end of the present century.
Self-sustaining growth in this context is clearly the point at which a country
is able to finance from its own savings the amount of investment required to
maintain a target rate of growth of national product, in this case 6 per cent.
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From page 36 and
top of page 37 of Agbetsiafa’s doctoral thesis:
The
difference between these two projections is not great, considering the fact
that the Chenery/Strout projection starts from the investment-savings point.
If, as is appropriate in such crude estimates, these projections are regarded
as indicative of orders of magnitude, the difference is explicable by the use
by the Pearson Commission of a somewhat lower incremental capital-output ratio rather
than the 3.52 used by Chenergy [sic] and Strout, thus compensating for the less
favorable assumptions regarding the terms and composition of inflow. This would
seem reasonable having regard to the interval between the two projections and
to the fact there is strong evidence that the incremental capital-output ratio
becomes more favorable as infrastructure becomes less dominant within the range
of income per head in the lower quarter of the per capita income distribution.
Compare this to Newlyn
(1977) page 95:
The
difference between these two projections is not great having regard to the fact
that the Chenery/Strout projection starts from the lowest savings point. If, as
is appropriate in such crude estimates, these projections are regarded as
indicative of orders of magnitude, the difference is explicable by the use by
the Pearson Commission of a somewhat lower incremental capital output ratio
than the 3.52 used by Chenery and Strout, thus compensating for the less
favourable assumptions regarding the terms and composition of the inflow. This would
seem reasonable having regard to the interval between the two projections and
to the fact that there is strong evidence that the incremental capital output
ratio (ICOR) becomes more favourable as infrastructure becomes less dominant
within the range of income per head in the lower quarter of the per capita
income distribution.[5]
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From pages 40
and 41 of Agbetsiafa’s doctoral thesis:
The conclusions of most empirical work on the relationship between the target
external capital flow and performance of the host countries' economies indicate
that both of the necessary conditions for self-sustained growth are only half
realized. The net inflow is about half the gross inflow and the addition to
investment is about fifty percent of the net flow. Hence the effect on growth
is reduced to a quarter of that assumed in the more optimistic projections and
the position is likely to get worse as the cost of increased commercial
borrowing mounts. The time taken and the resources required to achieve
sustained growth must be quadruppled to the extent that such projections are
meaningful. On the other hand, the propensity to consume out of foreign
financial resources is, in general, lower than the propensity to consume out of
income, and, in general, a considerable number of countries are being
successful in their tax efforts to overcome the savings constraint.
Compare this to
pages 144 and 145 of Newlyn (1977):
Summarizing
the conclusions of all the empirical work and combining these with the
relationship between the target flow and performance, it can be briefly said
that both the necessary conditions for self-sustained growth are only half
realized. The net flow is about half the gross flow and the addition to
investment is only half the net flow. Hence the effect on growth is reduced to
a quarter of that assumed in the more optimistic projections and the position
is likely to get worse as the cost of increased commercial borrowing mounts with
ODA static in real terms. The time taken, or resources required, must therefore
be multiplied by four to the extent that such projections are meaningful. On
the other hand, the propensity to consume out of foreign financial resources is
in general lower than the propensity to consume out of income and a
considerable number of countries are being successful in their efforts to
overcome the savings constraint, especially by taxation, as shown in Chapter
III. …
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From page 41 of
Agbetsiafa’s doctoral thesis:
There are, however, two consequences of the use of foreign resources to
accelerate the attainment of self-sustaining growth. which may in fact
frustrate it. The first is the difficulty, to which Douglas Dacy[16] has
recently drawn attention, of adjusting the government budget to the
discontinuation of foreign finance, given the built-in character of government
consumption expenditure patterns resulting from the use of foreign finance.
This is essentially a domestic, fiscal problem which is capable of solution
with appropriate phasing of tax effort. The other consequence of dispensing
with foreign finance is the almost certain emergence of the trade constraint
which is chronic and becomes acute with the combination of three factors.
Compare this to Newlyn
(1977) page 145:
There
are, however, two consequences of the use of foreign resources to accelerate
the attainment of self-sustaining growth which may in fact frustrate it. The
first is the difficulty, to which Douglas Dacy[41] has recently drawn
attention, of adjusting the government budget to the discontinuation of foreign
finance, given the built-in character of government consumption expenditure
patterns resulting from the use of foreign finance. This is essentially a
domestic, fiscal problem which is capable of solution with appropriate phasing
of tax effort. The other consequence of dispensing with foreign finance is the
almost certain emergence of the trade constraint, the formidable character of
which will be discussed in the final chapter.
See: W.T. Newlyn, ed., The
Financing of Economic Development
(Clarendon Press, Oxford, 1977).
From pages 41-42
of Agbetsiafa’s doctoral thesis:
The other
consequence of dispensing with foreign finance is the almost certain emergence
of the trade constraint which is chronic and becomes acute with the combination
of three factors. The first is that the structural change in the economy, which
is associated with the development process, causes the ratio of imports to
Gross National Product to rise in spite of import substitution. The second
factor is that the mounting reverse flow of foreign investment income with
respect to loan service and profits on existing capital reduces the capacity to
import. The third factor, which must operate if self-sustained growth is to be
attained, is the elimination of new borrowing and new inflow of capital plus
amortization of existing debt, the continued effect of which would require a
net outflow on capital account. The condition for emerging from the trade
constraint, assuming that the savings constraint has been overcome, is that
export proceeds as a percentage of GNP exceed the sum of imports, reverse flows
and net outflow on capital account.
Compare this to Newlyn
(1977), page 336:
For the
rest, the trade constraint is chronic and becomes acute with the combination of
three factors. The first is that structural change in the economy, which is
associated with development, causes the ratio of imports to gross national
product to rise in spite of import substitution. The second factor is that the
mounting reverse flow of foreign investment income (FY) in respect of loan service and
profits on existing capital reduces the capacity to import. The third factor,
which must operate if self-sustained growth is to be attained, is the elimination
of new borrowing and new direct foreign investment plus amortization of
existing debt, the combined effect of which would require a net outflow on capital account (CO).
See: W.T.
Newlyn, ed., The Financing of Economic
Development (Clarendon Press, Oxford,
1977).
From pages 55
and 56 of Agbetsiafa’s doctoral thesis:
Capital
inflow assists development in two distinguishable ways. On the one hand, it
adds to the total volume of resources at the country's disposal and thereby the
amount of resources which can be devoted to capital formation without a
reduction in consumption. On the other hand, it increases the country's ability
to import goods and services of certain specific kinds which are important to
development, but which could not be produced domestically, or which could only
be produced domestically at very high cost.
Compare this to
Garg (1977) at page 94:
Capital
inflow assists development in two distinguishable ways. On the one hand, it
adds to the total volume of resources at the country's disposal over and above
those used for consumption, which can be devoted to capital formation. On the other hand, it increases the country's
ability to import goods and services of certain specific kinds which are
important to development but which could not be produced domestically, or which
could only be produced domestically at very high cost.
See:
Garg, R.C. (1977) Debt Problems of Developing Countries. Intereconomics,
12(3-4): 93-97.
From page 56 of Agbetsiafa’s
doctoral thesis:
The need for external resources is thus determined by two separate sets of
forces. Increased investment is required to support a more rapid increase in
gross domestic product, and there is a limit to the amount of savings which can
be generated from a given amount of income. The difference between investment
needs and savings potential determines the amount of external capital needed to
obtain and sustain a given growth rate. Similarly, a certain level of gross
domestic product generates a demand for an indispensable minimum of imports.
The minimum trade gap for this level of GNP is equal to the difference between
this value of imports and the value of exports for a given year. Growth will be
limited to the largest volume of GNP that can be sustained by the inflow of
capital to ful-fill [sic] both of these requirements.
Compare this to
Garg (1977), page 94—end of column 1 and start of column 2:
The need
for external resources is thus determined by two separate sets of forces.
Increased investment is required to support a more rapid increase in gross
domestic product, and there is a limit to the amount of savings which can be
generated from a given amount of income. The difference between investment
needs and savings potential determines the requirement for external cap1tal .to
sustain a given growth rate. Similarly, a certain level of gross domestic
product calls for an indispensible minimum of imports. The minimum trade gap for this level of GOP
is equal to the difference between this value of imports and the value of
exports that can be sold in a given year. Growth will be limited to the largest
volume of GDP that can be sustained by the inflow of capital to fulfill [sic]
both these requirements, i.e., by the larger of the two gaps as determined
above.
See:
Garg, R.C. (1977) Debt Problems of Developing Countries. Intereconomics,
12(3-4): 93-97.
From
page 56 (bottom) and top of page 57 of Agbetsiafa’s doctoral thesis:
The savings-investment and export-import gaps will necessarily be equal. For
the gap, according to each of these two views, is the excess of the amount of
resources required over and above the amount of resources which can be
mobilized within the economy. There is only one gap to be filled by external
resources; however, the necessary equalization between the two gaps is brought
about by a process of adjustment. The underlying strains, determining the
amount of capital inflow needed to make possible a given rate of growth of
output and income, may in many cases be stronger on the foreign sector
variables of the economy.
Compare this to
Garg (1977), at p. 94, Column 2:
In any
actual situation (ex-post identity), the savings-investment and export-import
gap will necessarily be the same, for the gap, on each of these two views, is
the excess of the amount of resources used over the amount of resources
produced by the economy. There is only one gap to be filled by capital inflow;
however, this necessary identity of the savings-investment and export-import
gap is brought about by a process of adjustment. The underlying strains,
determining the amount of capital inflow needed to make possible a given pace
of development, may be predominantly on the export-import side.
See:
Garg, R.C. (1977) Debt Problems of Developing Countries. Intereconomics,
12(3-4): 93-97.
From page 65 of Agbetsiafa’s
doctoral thesis:
Broadly speaking, the two-gap analysis accepts that at an early stage of
technological development, growth of GNP may depend critically on importation
of goods and services. Since domestic resources may not always be freely
convertible into foreign resources, due to limited potential for expanding
exports, foreign capital inflow has to fill the bigger of the savings and trade
gaps. Within the framework of national income accounting, it can be shown that
the two gaps are necessarily equalized.
Compare this
to page 88 of Burrows (1975)
Broadly
speaking, the approach accepts that at an early stage of technological
development, growth may depend critically on importing goods and services from
abroad, and that domestic resources may not always be freely convertible into
foreign resources due to the limited potential for expanding exports. In this
situation, foreign capital inflows have to fill up the bigger of the two
gaps-trade gap and saving gap.
From page 67 of Agbetsiafa’s
doctoral thesis:
The literature on debt-financed economic development pictures the process as a
race between two variables growing at compound rates: debt and income. Debt is
generated by the gap between domestic saving and investment, which can increase
in absolute terms over time. As the gap widens and debt accumulates, interest
charges also cumulate, and the country must borrow increasing amounts just to
maintain a constant flow of net imports. It must also borrow to refinance
maturing debt obligations against any option of default. The capacity to
service debt depends critically on the continuing growth of national output
which makes it ultimately desirable to close and, if possible, reverse the gap
between domestic resources and investment.
Compare
this to Solomon (1977), at p. 485:
The
literature on debt-financed economic development pictures the process as a race
between two variables growing at compound rates: debt and income.[6] Debt is generated by the gap between domestic
saving and investment, which can increase in absolute terms over time. As the
gap widens and debt cumulates, interest charges also cumulate, and the country
must borrow increasing amounts just to maintain a constant flow of net imports.
It must also borrow to refinance maturing debt obligations. Income, in tum,
grows as a result of the investment process. The capacity to service debt
depends fundamentally on the continuing growth of output, which makes it
feasible ultimately to close and then reverse the gap between domestic saving
and investment.
From page 68 of Agbetsiafa’s
doctoral thesis:
Solomon[1]
depicts this process by the use of a modified version of the difference
equation model presented by Avramovic and others. Assume that growth proceeds
as a result of increasing investment and a fixed incremental capital-output
ratio. External debt finances the gap between investment and domestic saving;
changes in reserves and capital inflows other than interest-bearing debt are
ignored for the moment. Amortization of past loans is also ignored on the
plausible assumption that, as long as the gap exists, scheduled loan repayments
will be offset by new borrowings. Thus debt accumulates as the result of the
gap between investment and saving and of the interest
on the
growing debt.
Compare this to
Solomon (1977) at page 485:
The
process can be depicted by a simplified model adapted from the
difference-equation model presented by Avramovic and his associates.[7] In the
model below, growth proceeds as the result of increasing investment and a fixed
incremental capital-output ratio. All external debt is assumed to finance the
gap between investment and domestic saving; changes in reserves and capital
inflows other than interest-bearing debt are ignored and all prices are assumed
to be constant. Amortization of past loans is also ignored on the plausible
assumption that, as long as the gap exists, scheduled loan repayments will be
offset by new borrowings. Thus debt accumulates as the result of the gap
between investment and saving and of the interest on the growing debt.
From page 70
of Agbetsiafa’s doctoral thesis:
It is
clear from equation (8) that the second derivative is negative if r > i. The
debt-income ratio is thus asymptotic to (kr-a)/(r-i) since the maximum is
reached only when T is at infinity. Thus with an unchanged (kr-a)/(r-i), the
rate of growth of the debt income ratio will decelerate over time as long as r
> 1, an essential condition. Debt accumulation need not be an explosive
process. However a more relevant question may be posed, namely, whether the
limit is a reasonable one in terms of the ability of the borrowing country to
service debt.
[note
that in original thesis wording the letter r had a bar over it, but that was
not duplicated above]
Compare this
to Solomon (1977), at page 487:
It is clear from equation 3 that the second derivative is
negative if r > i. The debt-income
ratio is thus asymptotic to (kr- s)/(r-
i) since the maximum is reached only when T is at infinity.
Thus with an unchanged (kr- s)/(r- i), the rate of growth of
the debt-income ratio will decelerate over time as long as r > i, an essential condition. Debt accumulation need not be an
explosive process. The question may still be asked whether the limit is a
reasonable one in terms of the ability of the borrowing country to service
debt. ….
From pages 74
and 75 of Agbetsiafa’s doctoral thesis:
By making
possible a higher rate of investment than would otherwise be feasible, foreign
capital raises the rate of income growth. The magnitude of this acceleration
depends on the size of capital inflow and on productivity. The size of the
capital inflow, in turn, is determined by a number of factors. Among the
economic ones are the amount of resources which the borrowing country itself is
ready to provide for economic development and the rate of return. In macroeconomic
terms, the rate of return in indicated by the numerical relationship between
capital invested and the output generated. This relationship is itself
determined by the following factors: the availability of human skills, the
capacity to combine and organize the factors of production in an optimal
fashion, natural resource endowment, the sectoral distribution of investment,
and the rate of capacity utilization. The capital-output ratio in this sense is
an index of the strength of the dynamic sectors in relation to the stagnant or
slow-growing sectors, as well as the efficiency measure of resource
utilization. The higher the return on investment, the lower the incremental
capital-output ratio, the faster the increase in real income and the greater the
availability of resources for additional investment and for servicing foreign
capital.
Compare this
to Avromac (1964):
By making
possible a higher rate of investment than would other-wise be feasible, foreign
capital raises the rate of income growth. The magnitude of this acceleration
depends on the size of capital inflow and on the productivity of capital. The
size of capital inflow, in turn, is determined by a number of factors; among
the economic ones, decisive are the amount of resources which the borrowing
country itself is ready to put up for its economic development, and the rate of
return, i.e., the productivity of capital. In macro-economic terms, the latter
is indicated by the numerical relationship between capital investment and the
output generated. This relationship, in turn, is also determined by a number of
factors: the availability of human skills, the capacity to combine and organize
the factors of production in an optimal fashion, natural resource endowment,
the sectoral distribution of investment, the rate of capacity utilization, the
durability of assets created by investment. In a way, the incremental
capital-output ratio, used as a link between investment and product increase,
is an index of the strength of the dynamic sectors in relation to the stagnant
or slow moving sectors, and also, it is an index of the efficiency with which
resources are used.' The higher the return on investment-i.e., the lower the
incremental capital-output ratio-the faster the increase in real income and the
greater the availability of resources for new investment and for servicing
foreign capital.
From page 75 of Agbetsiafa’s
doctoral thesis:
The
"plough-back" out of increased income generated by such investments
must be sufficiently high to make it possible for the borrowing country to
reach a stage in which it can pay for all its investment needed to attain a
satisfactory rate of growth, out of its own resources.
Compare this
to Avromac (1964)
The plough-back out of increased income must be sufficiently
high to make it possible for the country to reach a stage in which it can pay
out of its own resources for all its investment that is needed to attain a
satisfactory rate of growth (vi).
From page 12
of Agbetsiafa’s doctoral thesis:
Once we
determine GNP growth rate, the first step in the projection is to estimate the
level of investment. This implies that we assume that output is determined by
the supply of factors of production and not be demand. This is a reasonable
assumption for medium term analysis but not for analyzing year-to-year
variations in output. It is recognized, however, that the problem of demand
becomes even more important when one is considering a disaggregated approach.
Compare this
to:
Given the
target growth rate, the first step in the analysis is to estimate the
investment required. This implies that we assume that output is determined by
the supply of factors of production and not by demand. This is a reasonable
assumption for medium and long term analysis, but cannot be used to analyze
year-to-year variations in output. The problem of demand becomes even more
important when one is considering a disaggregated approach, as the Plan does
(and as we are doing in this annex).
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/07/26/000178830_98101911114540/Rendered/INDEX/multi_page.txt [page 90]
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/07/26/000178830_98101911114540/Rendered/INDEX/multi_page.txt [page 90]
From page 113
of Agbetsiafa’s doctoral thesis:
In
estimating investment requirements for a given rate of growth, the parameter used
is the incremental capital-output ratio. We would want to caution, however,
that we do not treat this as a technological parameter, but rather as an
economic parameter that is influenced by such factors as the rate and pattern
of growth, technical change, and, most importantly, relative factor prices.
Compare this to:
In
estimating investment requirements for a given rate of growth, the parameter
that we use is the incremental capital output ratio (ICOR). This does not imply
that we assume capital as the only factor of production. We treat ICOR not as a
technological parameter, but as an economic parameter influenced by the rate of
growth, pattern of growth, technical change, and relative factor prices.
From page 128
of Agbetsiafa’s doctoral thesis:
The debt-service ratio has been calculated for various maturity period and
interest rates assumed in this study. The summary of all cases is contained in
the Appendix (B). This ratio is a convenient indicator of debt-servicing burden
in the short-run; Debt service is contractually fixed; in contrast, export
earnings continuously fluctuate. The higher the ratio of fixed service payments
to export earnings, the greater the strain which a debtor country may experience
when export proceeds contract sharply. It is noted, however, that while the
debt-service ratio is an incomplete indicator of present or potential liquidity
problems, it does draw attention to the cash flow squeeze to which an economy
in the process of growth may be exposed.
Compare this
to:
The debt
service ratio-ratio of service payments on external fixed-term debt to foreign
exchange earnings on current account-is a convenient indicator of debt
servicing burden in the short run.' Debt service is contractually fixed; in
contrast, external earnings-particularly of primary producing
countries-continuously fluctuate. The higher the ratio of fixed service
payments to external earnings, the greater the strain which a debtor country
may experience when external earnings contract sharply. While the debt service
ratio is an incomplete and imperfect indicator of present or potential
liquidity problems and should never be used in isolation of all other variables
relevant to the appraisal of these problems, it does draw attention to the cash
flow squeeze to which an economy-and particularly an economy in the process of growth-may
be exposed.
(in
Introduction to ESSAY I)
From page 128
of Agbetsiafa’s doctoral thesis
The choice of long maturity periods is in recognition of the fact that the most
severe crises are caused by the concentration of maturities in a short period.
If the debtor country has to repay a large proportion of its debt within a few
years, if no foreign exchange reserves have been accumulated to enable the
retirement of the debt, and if the creditors are unwilling to undertake the
refinancing of the debt, liquidity difficulties will be acute.
Compare
this to
The most
severe liquidity crises are caused by the concentration of maturities in a
short period. If the debtor country has to repay a large proportion of its debt
within a few years; if no foreign exchange reserves have been accumulated to
enable the retirement of the debt; and if the creditors are not willing to
undertake the refinancing of the debt- liquidity difficulties will be acute.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 71
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 71
From pages 128
and 129 of Agbetsiafa’s doctoral thesis:
Breakdown may be avoided if the debtor country drastically curtails its imports
and thus releases resources for the liquidation of short-term debts. This helps
to restore its credit abroad, but in the mean time the process of economic
growth is arrested.
Alternatively, creditors may agree to postpone collections
as has been the Ghanaian case. This provides a breathing spell. But if the
postponement is only for a few years, a new liquidity crisis occurs in short
order. This succession of crises inevitably affects the flow of long-term
capital that is needed for development.
Compare this
to:
Breakdown
is avoided if the debtor country drastically curtails its imports and thus
releases resources for the liquidation of short-term debts; this helps restore
its credit abroad, but in the meantime the process of economic growth is
arrested. Alternatively, creditors may agree to postpone collections, and this
provides a breathing spell. But if the postponement is only for a few years, a
new liquidity crisis occurs in short order. This succession of crises
inevitably affects the flow of long-term capital that is needed for
development.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 71
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 71
From page
129 of Agbetsiafa’s doctoral thesis:
Four
causes of unfavorable debt structures deserve mention. First, in cases where
export declines occur, the affected country usually resorts to borrowing
abroad, mostly on short-term, to compensate for the fall in exchange receipts.
If a quick recovery of exports follows, these short-term loans could be repaid
on time. But when the export yield decline is more persistent, quick
liquidation becomes much more difficult. A heavy overhang of such compensatory
indebtedness usually remains in several cases.
Compare this to:
The
causes of unfavorable debt structures are complex and interrelated. Four of
them can easily be singled out: (a) In cases where export declines occurred,
the affected countries usually resorted to borrowing abroad, mostly on
short-term, to compensate for the fall in exchange receipts. If a quick
recovery of exports followed, these short-term loans could be repaid on time.
But when the export decline was more persistent (e.g., in the case of coffee
producing countries-see para. 37), quick liquidation was much more difficult.
Creditors usually agreed to extend the repayment terms, but only for a few
years. Consequently, a heavy overhang of such "compensatory"
indebtedness has remained in several cases.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73:
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73:
From page 129
of Agbetsiafa’s doctoral thesis:
Secondly,
unfavorable debt structure results from too optimistic expectations regarding
the duration of high export prices. This is usually coupled with imperfections
of the monetary mechanism and of monetary policies resulting in excessive
spending, especially on imports.
Compare this
to:
Too
optimistic expectations regarding the duration of high prices, coupled with imperfections
of the monetary mechanism and of monetary policies, have occasionally led to
excessive spending and thus to excessive imports.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73, point (b)
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73, point (b)
From page
130 of Agbetsiafa’s doctoral thesis:
Unless
these pressures are accompanied either by ruthless import controls or flexible
exchange rate practices, excess demand inevitably spills over not only into
capital goods imports but also into additional imports of consumer goods. If
sufficient foreign exchange reserves are not available, imports are bought on
credit, frequently short-term and medium term. Furthermore, if monetary
expansion has been accompanied by acceleration of investment, additional
imports of consumer goods and raw materials. All these four casues [sic] tend
to reinforce each other and worsen the debt burden.
Compare this
to:
Unless
these pressures are accompanied either by ruthless import controls or by
flexible exchange rate practices, excess demand inevitably spills over into
extra imports; If sufficient foreign exchange reserves are not available,
imports are bought on credit, frequently short- and medium-term. Furthermore,
if monetary expansion has been accompanied by acceleration of investment-quite
frequent phenomenon in the early stages of inflation-additional imports of
capital goods join the stream of additional imports of consumer goods and raw
materials.
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73, within point (d).
http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2003/01/15/000178830_98101911364779/Rendered/INDEX/multi0page.txt, paragraph 73, within point (d).
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