Export pressure and the less developed countries' (LDCs') debt problem

Abstract

This paper examines the effect of the external debts of less developed countries (LDCs) on their exports to the United States. Specifically, the effect that manifests as pressure on the 48 most indebted LDCs to export to the US is investigated. Cross‐ sectional regression analysis and data for 1984 are used in the estimation. The estimates show that the burden of external debts put significant pressure on LDCs to export. The estimates also suggest that the LDCs are conscious of their creditworthiness in the international financial market. Furthermore, the results highlight the inadequacy of the current General Agreement on Tariffs and Trade (GATT) negotiations that focus on trade in goods and services to the exclusion of the LDCs' debt problem. GATT negotiations should give LDCs' market access to industrialized countries greater weight on its agenda as an attempt at tackling the LDCs' debt problem. This is necessary for the long‐term growth of these LDCs, a concern to which enough attention has not been paid. In addition, Western donor countries and their banks should provide more debt relief to these debtor countries. This will enable LDCs to retain a substantial part of their export earnings. Uncertainty is reduced, thus providing the much‐needed impetus for entrepreneurs in these poor economies to commit themselves to long‐term investments. This will guarantee long‐term economic growth.