| dc.description.abstract | A dynamic stability approach is applied to show how the debt-servicing ability of
transition/developing economies exceeds that of mature market economies. At the core of this
debt-servicing advantage lies not only relatively higher growth but more importantly the
productivity- and efficiency gains released by the re-allocation and restructuring activities
originating in the developing economies’ unbalanced sectoral growth. First, the dynamic
stability approach is extended to allow for two sectors of production, allowing both growth
and sectoral composition to matter for stability and the debt-to-GDP ratio. Second, sector
sizes are endogenized to depend on the productivity growth difference. The model shows how
the equilibrium debt-to-GDP ratio depends on both an economy’s existing industrial structure
as well as on its structural flexibility and how it varies along a country’s transition trajectory.
All things considered, how much debt relative to GDP a country can (or should) sustain is
highly context specific and depends on the prevailing economic structure, composition of
growth, structural flexibility, and the prevailing incentives for restructuring. Hence this paper
delivers a cautionary note toward the one-size-fits-all approach to debt sustainability | en_US |
