Analytical Note, September 2002

The relationship between Trade and Debt.

The existence of a relationship between trade and debt is a contentious issue. In fact, a clear divide exists between developed and developing countries regarding the subject, a division which has necessitated the formation of the Working Group on Trade, Debt, and Finance (WGTDF) within the World Trade Organization (WTO).

This paper is of the opinion that such a relationship does exist and that it has been and continues to be of a particularly negative nature. The problem of large debt overhangs in developing countries is unequivocally a result of the particular circumstances of their terms of trade within the international economic system.

For this reason, the objective of this paper is to examine the impact of world trade conditions on the increasing debt burden, and the effect of external indebtedness on the trade performance of developing countries with a view to providing remedial measures and flexibilities within WTO provisions.

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