Pasinetti, Debt Sustainability and (Green) Structural Change at the Time of Global Finance: An Emerging and Developing Countries’ Perspective

Botta, Alberto and Spinola, Danilo and Yajima, Giuliano and Porcile, Gabriel (2023) Pasinetti, Debt Sustainability and (Green) Structural Change at the Time of Global Finance: An Emerging and Developing Countries’ Perspective. Working Paper 25. Centre for Accountancy Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University. (Unpublished)

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Abstract

This paper studies the relationship between financial integration, external debt sustainability, and fiscal policy space in emerging and developing (EDE) countries. We do so by applying Pasinetti’s “geometry of debt sustainability” to EDE countries and analysing how it is shaped by exposure to global financial cycles. Through the lenses of Pasinetti’s theoretical framework, we study whether global finance opens “windows of opportunities” or creates more constraints for EDE countries in offering fiscal support for structural changes, including green structural transformations. This analysis is crucial for tackling the pressing issue of the climate crisis. We suggest EDE countries may face a “gridlock”. Global finance and pressures to keep external debt sustainable make them struggle to maintain vital public investment and enact counter-cyclical fiscal actions. Lack of fiscal space in turn exacerbates technological backwardness, which feeds back in the form of more binding external constraints and tighter “surveillance” by international creditors. We support our theoretical analysis with an econometric study over a sample of 55 countries from 1980-2018. Capital controls and external macroprudential policy emerge as fundamental policies enabling EDE countries to adeptly manoeuvre through debt challenges without falling into the pitfalls of stagnation and enduring technological underdevelopment.

Item Type: Monograph (Working Paper)
Identification Number: 25
Dates:
DateEvent
15 December 2023Submitted
Uncontrolled Keywords: Financial globalisation, fiscal space, structural change
Subjects: CAH15 - social sciences > CAH15-02 - economics > CAH15-02-01 - economics
Divisions: Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship
Faculty of Business, Law and Social Sciences > College of Business, Digital Transformation & Entrepreneurship > Centre for Accountancy Finance and Economics
Depositing User: Danilo Sartorello Spinola
Date Deposited: 19 Dec 2023 09:48
Last Modified: 19 Dec 2023 09:48
URI: https://www.open-access.bcu.ac.uk/id/eprint/15063

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