Capital Inflows and National Debt

Eatzaz Ahmad


Using a three-gap model, this paper simulates the future time
paths of resource deficits in Pakistan. The paper then show that the
policy of increasing the rate of return on foreign capital can reduce
foreign debt when foreign capital is sufficiently responsive to changes
in its rate of return. This, however, happens at the expense of
increasing domestic debt. The policy of selling public assets abroad
appears fruitless. The main benefit of this policy is a reduction in
domestic debt which can better be achieved by selling public assets

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