A Debt Overhang Model for Low-Income Countries

The paper presents a theoretical model to explain how debt overhang is generated in low-income countries and discusses its implications for debt relief. The paper indicates that the extent of debt overhang, and the effectiveness of debt relief, would depend on a recipient country''s initial economic conditions and level of total factor productivity.Debt relief;Debt burden;Productivity;Economic growth;Economic conditions;Economic models;debt overhang, gdp per capita, real gdp, debt sustainability, debt renegotiation, sovereign debt, growth rate, external debt, debtor country, amount of debt, multilateral debt, debt accumulation, multilateral debt relief, official creditors, debt reduction, total factor productivity, international lending, debt relief initiative, excess debt, concessional debt, external borrowing, debt stock, official creditor, per capita income, growth model, external loans, repayments, foreign aid, debt burdens, neoclassical growth model, debt problems, debt dynamics, private debt, external debt sustainability, sovereign default