Protectionism and the Debt Crisis

Macroeconomic problems in the world economy are, from a developing country’s point of view, dominated by the twin problems of debt and protectionism. Earlier papers on North-South interactions (Dornbusch, 1985; Sachs and McKibbin, 1985; van Wijnbergen, 1985a, b) focused on the impact of Northern trade and fiscal policies on world real interest rates and hence on the burden of Southern debt. In this paper, I take the transfer the South needs to make to the North on principal and debt service as given; instead the focus is on how trade policy in the North exacerbates the problem of effecting that transfer.