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Essay Details:
Essay text:
To illustrate
the key ideas, I introduce a very simple model in which the net saving rate
falls to zero when income drops below a minimum subsistence level.12
Suppose that individuals require a level of minimum real consumption
m to meet basic needs of personal health and hygiene, food intake, and
shelter. (Unless otherwise noted, all variables are in per capita terms.)
The overhang of unpayable debt, and still more, the buildup
of new debt if aid comes in the form of loans rather than grants, would
convince potential private sector investors that the country remains
trapped. Creditors themselves might promise their help now only to insist
on increased debt service payments in the future if the country starts to
recover...
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