External debt, net transfers, and growth in developing countries

Abstract

The paper argues for the relevance of the concept of net transfers to analyze the growth constraints in heavily indebted developing countries. A conceptual shift is proposed in analyzing the sources of investment financing, from the traditional dichotomy between foreign savings and national savings, toward a more relevant dichotomy between net real resource transfers and domestic savings at constant prices. The consequences of introducing the foreign exchange constraint and the fiscal constraint for the analysis of the impact of foreign transfers are also explored.