The Determinants of International Creditworthiness and Their PoHcy ImpHcations Gershon Feder and Lily V. Uy, World Bank and George Washington University The present paper utilizes an empirical measure of creditworthiness based on bankers' perceptions to estimate the effect of various variables hypothesized to influence assess- ments of countries' debt-servicing capacity. The data pertain to a cross section of countries within the period 1979-83. Su ch estimates necessarily employa ceteris paribus assump- tion, which prevents a realistic assessment of the effects generated by policy changes. The second part of the paper develops, therefore, a dynamic simulation model of a hypothetical average economy. The simulations allow analysis of changes in macro- economic variables and creditworthiness over time within a system that maintains accounting identities and behavioral constraints. Several changes in policy variables are considered that highlight the importance of export expansion. The latter is, of course, an often suggested policy objective, but the present paper demonstrates its effectiveness in terms of a somewhat nonstandard criterion. 1. INTRODUCTION The recent debt crisis and the simuItaneous reduction in commercial banks' lending to less developed countries have focused attention on the issue of creditworthiness in the international tinancial arena. During the years following the tirst oil crisis, the role of international commercial lenders increased substantially as providers of development finance to a large group of less developed countries. It has been shown that creditworthiness considerations affect significantly the lending decisions of commerciallenders (Feder and Ross 1982), and it follows therefore Address correspondence to Gershon Feder, The World Bank, 1818 H Street, N.W., Washington D.C. 20433. The authors are staff members of the World Bank. However, the World Bank does not accept responsibility for the views expressed herein, which are those of the authors and should not be attributed to the World Bank or ta its affiliated organizations. Received August 1984; accepted October 1984. Journal ofPolicy Modeling 7(1):133-156 © Society for Policy Modeling, 1985 133 0161-8938/85/$3.30