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|Title: ||International credit and welfare: A paradoxical theorem and its policy implications|
|Authors: ||Basu, Kaushik|
|Issue Date: ||30-Aug-2006|
|Abstract: ||This paper considers a developing nation that faces a foreign exchange shortage and hence
its demand for foreign goods is limited both by its income and its foreign exchange balance.
Availability of international credit relaxes the second constraint. We develop a simple model
of strategic interaction between lending institutions and firms, and show that the availability
of international credit at concessionary rates can leave the borrowing nation worse off than if
it had to borrow money at higher market rates. This ?paradox of benevolence? is then used to
motivate a discussion of policies pertaining to international lending and the Southern
government?s method of rationing out foreign exchange to the importers.|
|Appears in Collections:||Professor Kaushik Basu Papers|
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