Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Debtor Nation Definition
A nation who owes more to the other countries than its total investments in foreign lands is called a debtor nation. In other words, it is a country with a cumulative balance of payment deficit. A debtor nation invests fewer resources worldwide than the other countries cumulatively invest in it.
A Little More on What is a Debtor Nation
An individual or an entity who owes money or any other benefits to some other entity or individual is called a debtor or borrower. A nation who owes to other nations is called debtor nation.
After calculating the total investments made worldwide, a debtor nation’s net investment stands negative. The USA is considered to be a debtor nation, as it owes more to the other countries than other nations owes to it. Among other debtor countries, there are Greece, Portugal, Brazil, India, and others.
The total money and exports sent out to the other countries by a debtor nation are lower than the money coming into the country, so it faces trade deficit.
When demand in a country is higher than the production necessary to meet that demand, the country imports goods from foreign countries to meet that demand. The result is a trade deficit.
There are benefits and detriments to this. Importing foreign goods and services allows the people of the country to have more choices available to them. Also, importing increases the foreign competition which often leads to a decreased price of consumer goods in the country. The negative is that there is generally a loss of production jobs in the country purchasing the cheaper foreign goods. This can lower economic demand as these workers have lose a source of recurring income.
References for Debtor Nation
Academic Research on Debtor Nations
- · The world’s greatest debtor nation?, Eisner, R., & Pieper, P. J. (1990). North American Review of Economics and Finance, 1(1), 9-32. This paper examines the popular notion that U.S. is the world’s greatest debtor nation. By making a thorough analysis of the value of direct investment abroad by the U.S. and direct investment by foreign firms within the U.S., as well as international monetary values, the authors find that the position of the U.S. is more or less in balance.
- · Debt for nature swaps—overview and discussion of key issues, Hansen, S. (1989). Ecological Economics, 1(1), 77-93. This paper offers an overview of a modern situation in international finance – the debt-for-nature swap. In this arrangement the debt of an under-developed or developing nation is forgiven in exchange for an environment-related action. The author addresses this practice, and offers some insight as to costs and benefits of such a practice. Recommendations regarding the future of debt-for-nature deals are also offered.
- · Debtor nation: how consumer credit built postwar America, Hyman, L. (2008). Enterprise & Society, 9(4), 614-618. This paper offers the author’s take on the history of personal debt. This look at the story of owing money is presented as part of the story of American capitalism that began in ancient times and continues into the present day.
- · The politics of debt in America: From debtor’s prison to debtor nation, Fraser, S. (2013). TomDispatch. com, 29. The author presents a historical look at the nature of debt. This opinion piece offers a broad overview of debt and its role in the U.S. economy throughout history. Presented as the double-edged sword of commerce, debt is addressed from the American Revolution to the modern day.
- · Debtor nation, Hyman, L. (2011). This work offers a history of debt in America and its role in the nation’s financial health. Presented in a historical context, decades of financial behavior from the Great Depression to the Great Recession are analyzed. The author suggests that personal debt levels are the result of influence by Wall Street, banking institutions, and government intervention.
- · The United States as a net debtor nation: Overview of the international investment position, Jackson, J. K. (2013). This paper examines the financial status of the United States as it relates to international investment. The author challenges classic notions of this measurement and offers an alternative view that takes into account factors such as capital flows and foreign activity in U.S. capital markets. Recommendations are made about U.S. reliance on foreign capital.
- · Patterns of entry: Pathways to new markets, Willard, G. E., & Savara, A. M. (1988). California Management Review, 30(2), 57-76. The authors of this article suggest that there may be a pattern to the loss of vitality in American industrial markets over the last 40 years. This article analyzes research that makes a convincing argument regarding the loss of ground to foreign firms competing in the U.S. as well as U.S. firms losing market share abroad.
- · Globalization and conditionality: two sides of the sovereignty coin, Tsai, M. C. (1999). Law & Pol’y Int’l Bus., 31, 1317. This paper takes a look at the relationship between policies enacted by the International Monetary Fund (IMF) and the World Bank in relationship to the sovereignty and financial goals of the individual countries that make up these organizations. Through an examination of the Asian financial crisis, the author critiques the effectiveness of the conditional IMF/World Bank policies and argues that globalization and the conditional policies of these organizations may not be operating the best interest of individual countries’ self-governance.
- · A model of strategic default of sovereign debt, Kulatilaka, N., & Marcus, A. J. (1987). Journal of Economic Dynamics and Control, 11(4), 483-498. This paper uses a stochastic model to illustrate the process debtor countries go through when considering the choice of defaulting on a sovereign debt. The model is reinforced by the results of actual data that confirm the pattern of options laid out by the authors.
- · Inflows of Capital to Developing Countries in the 1990s, Calvo, G. A., Leiderman, L., & Reinhart, C. M. (1996). Journal of economic perspectives, 10(2), 123-139. This paper offers a general review of the causes, facts, and policies that have surrounded the flow of capital investment into Asia and Latin America. The authors take into account recent events (such as the 1994 crisis in Mexico), and offer their observations in regards that appear to be successful in such ventures.
- · Political instability, country risk and probability of default, Balkan, E. M. (1992). Applied Economics, 24(9), 999-1008. Through the use of modeling, this research attempts to identify and quantify the relationship between levels of political stability and the corresponding risk of a nation defaulting on its debt. The summary shows that political instability is directly related to default risk, while democracy offers a greater chance of long-t.