Debt and the developing countries: A note on optimal international borrowing

This note re‐examines the economic model of optimal international borrowing for LDCs proposed by Gemmell [1988]. Pursuing a rigorous methodology, this note derives alternative optimal debt functions, and discusses the sufficient conditions under which the optimal debt level is positive. Interesting implications of the analysis in this note, inter alia, rest in identifying the appropriate role of social inter‐temporal consumption preferences in a more realistic setting, and in perceiving, unambiguously, the tendency of ‘overborrowing’ by LDCs that only service their debts over long periods.