Abstract
Current debates about the role of external finance in development mostly overlook the insights from early development economics that late industrialisation generates a structural tendency to run trade deficits, thereby exacerbating rather than relieving external foreign exchange constraints. The developmental role of external finance is therefore based on its strategic marginal contribution to relieve such constraints. External debt in particular also allows countries to pursue industrial strategies without reliance on foreign direct investment. These insights are revisited in this paper as a critical input to both mainstream and heterodox contemporary scholarship on debt and development. While the mainstream generally avoids discussion of state-led industrial policy, the heterodox has converged on a view that developing countries should avoid external finance. The contrasting external account histories of South Korea and Brazil are examined to demonstrate the validity of the classic insights and the contemporary fallacies. While the South Korean case speaks much to its geopolitical context, this does not necessarily refute the principle that post-war late development engenders an intensive demand for external finance, which must be met if industrialisation strategies are not to be stymied, as in the case of Brazil, no matter how effectively domestic strategies are conceived and implemented.