Developing economies have heterogeneous experiences with growth and openness. Our research addresses why this may be so. The research documents a core empirical fact: The countries that grow relatively fast do so while reducing sovereign liabilities and accumulating foreign reserves. Standard economic intuition states that a capital-poor country can benefit from openness by importing financial capital. However, in practice, countries that accumulate foreign liabilities tend to stagnate, while fast-growing economies provide capital to the rest of the world. This project builds an economic framework to understand this phenomenon and provide policy guidance.
Aguiar, M.; Amador, M. The Political Economy of Sovereign Debt Overhang (IGC Policy Brief). International Growth Centre (IGC), London, UK (2009) 4 pp.