306_Chapter21 - International Financial Crises Chapter 23...

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Unformatted text preview: International Financial Crises Chapter 23 • Types of international lending – Private or official (government or int’l org) – Long-term or short-term – Direct or portfolio investment • Who gains and who loses from international lending – Welfare in both the lending and borrowing countries is increased – Lenders in the lending country win, borrowers lose – Lenders in the borrowing country lose, borrowers win • Biggest lenders – US (1940s-1980s), OPEC (1970s), Japan, Gremany Lending to developing countries • Increased lending (1974-1982) and the debt crisis – Reasons for increased lending (from 10 to 20% of GDP): • “petrodollars” deposited in western banks and available to invest • Start of productivity growth slowdown in developed nations (diminished availability of domestic projects) • Developing countries prefer government or private loans to foreign direct investment (companies) • Because everyone else is doing it – The debt crisis (1982) • Higher interest rate and recession in the developed countries , reduced demand for exports from developing •...
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306_Chapter21 - International Financial Crises Chapter 23...

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