Foreign private debt in a Kaleckian growth model

PABLO GABRIEL BORTZ

Conferencia; 17 Research Network Macroeconomics and Macroeconomic Policies (FMM) Conference; 2013

We develop a Kaleckian growth model with conflicting claims on income distribution by firms and workers. We add the possibility of foreign borrowing by firms, modeling those flows of external debt according to the post Keynesian tradition on exchange rate determination, and analyze the interaction between income distribution, aggregate demand and financial (private) inflows. Based on this model, we apply econometric tests on two developing economies which have experienced in the past balance of payments crises related to foreign indebtedness (Mexico and South Korea). Our results show that these episodes have occurred through different channels of foreign borrowing, in line with the arguments of Kregel (1998), and points towards the damaging impact of escalating foreign private debt on economic activity and income distribution.