Debt servicing capacity and the role of public investments: A case study of Turkey

Abstract

In this dissertation, the debt capacity of a borrowing anddeveloping country is investigated.The typical Growth-Cum-Debt approach of Avramovic investigatesthe debt capacity through various stages on basic assumptions ofHarrod's growth model. There are several shortcomings in suchgrowth related debt models which are skipping various features ofthe development process.In this paper I aimed at incorporating some of isolated featuresthat were kept out of the concern in Growth-Cum-Debt models, butnot all of them could be considered in an analytical modeldescribing the process in a compact fashion. That's why thecritics directed towards the conventional approach are also thematters of this work.The determining differences of this paper's model can be statedsuch that:-The growth rate of an economy can not be given. The countries indevelopment process can not determine their developmentstrategies independently within an environment of scarceresources in international capital markets and politicallimitations that the governments of developing countries face.The logical consequence of this view is that the investmentstrategy is an exogenous factor, indeed.-The economy is made up of two sectors with tradable andnontradable output which are attributed to private and publicsectors respectively. This is an undeniable feature of theeconomy which should be defined clearly, especially due togovernment's responsibility in the accumulation of debt stock inTurkey as in some Latin American countries. The reasoning underthis seperation is the obvious difference in capital-outputratios of these sectors with a government involving ininfrastructure investments and a private sector in investmentswith higher rate of return. The crucial point here is where toinvest external resources which are highly expensive not only inthe meaning of its real but also of its severe social andpolitical costs