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Investment Slowdown in Developing Countries during the 1980s: Debt Overhang or Foreign Capital Inflows?

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  • Savvides, Andreas

Abstract

This paper estimates a simultaneous-equation model for the determination of creditworthiness and investment rates in developing countries. Its purpose is to test the debt overhang hypothesis, according to which the external debt burden provides a strong disincentive to domestic capital formation. The results indicate that debt overhang has contributed significantly to the reduction in developing country investment rates during 1980-86. The model also examines the contribution of foreign capital inflows and shows that commercial inflows contributed significantly to the investment slowdown, while noncommercial inflows were insignificant. Copyright 1992 by WWZ and Helbing & Lichtenhahn Verlag AG

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Kyklos.

Volume (Year): 45 (1992)
Issue (Month): 3 ()
Pages: 363-78

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Handle: RePEc:bla:kyklos:v:45:y:1992:i:3:p:363-78

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0023-5962

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Cited by:
  1. Andrea F. Presbitero, 2010. "Total Public Debt and Growth in Developing Countries," Development Working Papers 300, Centro Studi Luca d\'Agliano, University of Milano.
  2. Wamboye, Evelyn, 2012. "External debt, trade and FDI on economic growth of least developed countries," MPRA Paper 39031, University Library of Munich, Germany.
  3. Vivian Lei & Steven Tucker & Filip Vesely, 2010. "Forgive or buy back: an experimental study of debt relief," Review of Economic Design, Springer, vol. 14(3), pages 291-309, September.
  4. Tilemahos Efthimiadis & Panagiotis Tsintzos, 2012. "The Internal-External Debt Ratio and Economic Growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 941-951.
  5. Jansen, Karel, 1995. "The macroeconomic effects of direct foreign investment: The case of Thailand," World Development, Elsevier, vol. 23(2), pages 193-210, February.
  6. Locke, Christopher G. & Ahmadi-Esfahani, Fredoun Z., 2001. "Debt overhangs and international agricultural trade," Journal of Policy Modeling, Elsevier, vol. 23(2), pages 189-216, February.

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