External Shocks and Sustainable Development : A Test of the Interruption of Foreign Borrowings on a Target Small Open Economy

The structure of this paper is to examine the effects of the interruption of foreign borrowings as an external shock on the time path of the economic growth rate of South Africa. In this paper, I examine the open economy version of both the Solow and the Ramsey growth models. In addition, I also undertake linear intervention analysis to examine the effect of the financial embargo on the time path of the economic growth of South Africa until 2000. Based on both the theoretical and the empirical models, I conclude that the financial embargo of 1980-1991 on South Africa has a temporary negative effect on the time path of the economic growth rate and the economy will be sustained in the long run