Financial constraint and growth in the developing countries

The prudential ratios External debt/GDP have been introduced by international lenders to limit credits to some developing countries in order to secure themselves against the risk of default However, these prudential ratios do not take into account the origin of the shocks. Financial constraints that ration investment are prejudicial to growth. It can indeed induce a Growth Trap. The decrease of investment help finance the external debt but implies a long lasting regime of slow growth. In order to precise this Growth Trap, we develop models with one or two countries. The developing country has the following features: no national financial market, no access to international stock markets, scarcity of physical capital and abundance of labour. Two regimes of goods are distinguished according to the fact that the country is a net exporter or importer. Two regimes of investment are distinguished according to the fact that it is demand determined or financially constrained. The expectations of the growth of demand are rational and endogenous and reveal the constraints.