Study On Economic Effect Of External Debt

For getting rid of lag, many developing countries started to absorb external debt to develop their economics since the 1970s. One hand, external debt make up the funds deficiency of debtor nation, brings advanced technology and management experience; add throughput and revenue and the chance of taking up an occupation. On the other hand external debt not only acts as the lovely angel who can pass evangel and bring good luck but also need to pay principal and interest. If the scale of external debt scale exceed the actual need and the ability of homeland economy, it is possible that one nation can bring external debt crisis. Especially with economic globalization deepening and continual innovation of the financial market, the scale of international capital flow is bigger and flow pace is quicker and the external debt risk is bigger. Continually eruptible external debt crisis in the last twenty years make external debt of developing countries come under more suspicion. The lost decade of Latin America and the overturn of Korean miracle and African industrial eclipse and the eruption of Argentina financial crisis are the evil consequence of overfull external debt. Therefore, under world economy incorporate circumstance, it has very practical meaning to effectively use external debt and develop socialistic market economics in China that we shall newly scan the economic effect of external debt and deeply research on the problem of external debt and strengthen management. Basing on above-mentioned consideration and combining my interest, I shall try to deeply study on the effect of external debt in order to supply useful help for developing Chinese economy.This paper uses the basic theories of Marx and capital theory and uses for reference the correlative discussion of west economics. Through history review, empirical study and analysis of Chinese external debt, the paper analyzes the effect to economic increase, foreign exchange reserve, money supply, interest rate, exchange rate technology progress and posts duality of external debt. The duality of external debt express: external debt is an engine for social economic development from absorbing foreign capital and technology. Meanwhile, external debt must chase profit by way of bearing interest capital. If we can't improperly use and strictly manage, external debt will become the shackle of economy development and it is possible to bring debt crisis.The paper consists of seven chapters, and their main contents are summarized as follows.Chapter one is tracing to the source and development and actuality of external debt in China. This chapter set forth the development process of external debt in China and explains the effect problem of external debt in China from historic angle. Before 1949, China borrowed a lot of external debt. On the one hand, external debt accelerated China's economic development, on the other hand external debt brought serious bale to china. External debt made China become the semi-colony and semi-feudal society. External debt incarnated the duality in latter-day China.Chapter two is a review and consideration about effect theories of external debt and Marx external debt theories. The theories of Marx and the classical economics and stodgy economics developmental economics supply abundant thought for our research and have importantly directive meaning to study the effect of external debt.Chapter three is an analysis of external debt effect on economic increase. This chapter analyzes the relation between external debt and economic increase by establishing model, analyze necessary condition and reason that external debt hastens economic increase, set forth economic effect of external debt on economic increase in China since the 1990s. It not only lies on the flowing of external debt but also is concerned with native capital ability for external debt accelerating economic increase in developing countries. On the one hand, if native capital ability is strong, the critical value of external debt working is high; on the other hand, on condition of the limited ability of native capital developing countries must lead external debt to the productive field. Since 1979, external debt has accelerated China's economic increase and has brought negative effects to continuous economic increase.Chapter four is an analysis of external debt effect in financial domain. This chapter researches into the relation between external debt and foreign exchange reserves, money supply, interest rate, exchange. This chapter studies on China's actual questions. This chapter points out that there is definite relation between external debt and moderate foreign exchange reserves by building model. The flowing of external debt can influence money supply and different borrowers'influence is different. This chapter points the flow of external debt adding foreign exchange reserves, money supply and inflation press, at the same time plentiful foreign exchange reserves bring large numbers of costs.Chapter five is an analysis of external debt effect on technology advancement. This chapter analyzes the road of external debt accelerating technology advancement in developing countries by building model. This chapter sets forth positive and negative effect on technology advancement in China. This chapter points external debt has had a positive effect on technology advancement in China since reform and opening, but external debt also restrained self-determination technology innovation.Chapter six is an analysis of the risk of external debt. Marx pointed external debt has the duality. This chapter discusses the risk of using external debt and analyzes the risk of scale and structure in China. This chapter points the possibility of occurring debt crisis is very low, but it can't be ignored for the hidden risk of external debt.Chapter seven is a strategy choice on healthy running of external debt in China. Under international and domestic circumstance, this chapter put forward a lot of strategy to insure healthy running of external debt in China now. This chapter brings forward that China should use native capital as soon as possible to develop economy. On condition that civil capital is unavailable, we may use foreign capital. External debt should be main manner of using foreign capital. We should adjust the structure of external debt's time and source and money kinds, improve correlative systems and environment in order to reduce the risk of external debt and promote the development of China economy.