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Foreign debt, sanctions and investment: a model with politically unstable Less Developed Countries
Author(s) -
Dalmazzo Alberto,
Marini Giancarlo
Publication year - 2000
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(200004)5:2<141::aid-ijfe119>3.0.co;2-a
Subject(s) - sanctions , economics , foreign direct investment , external debt , debt , international economics , monetary economics , investment (military) , foreign capital , politics , capital (architecture) , macroeconomics , political science , history , archaeology , law
This paper analyses the underinvestment problem in less developed countries (LDCs) characterized by political uncertainty. It is shown that both the strategic use of foreign debt and direct foreign investment can reduce the extent of underinvestment, determined by insecure property rights, when international sanctions are operative. In particular, foreign debt may be the most effective tool to increase the investors' share and promote physical capital accumulation. Copyright © 2000 John Wiley & Sons, Ltd.