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Contract Enforcement, Institutional Stability, and the Level and Maturity of International Debt

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Author Info
Wasseem Mina (U.A.E. University)
Jorge Martinez-Vazquez () (International Studies Program. Andrew Young School of Policy Studies, Georgia State University)

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Abstract

Contract enforcement and institutional stability play an important role in determining the level and maturity of international debt. Contract enforcement is modeled as a fixed cost that investors incur to obtain the contracted, gross returns on international investments. Institutional stability is modeled as the probability that the same contract enforcement cost will persist over time. Countries with poor contract enforcement and institutionally unstable impose higher contract enforcement costs and increase uncertainty about their structure. The level and maturity of international debt is reduced as a result. The empirical estimation provides support for the hypothesis. Stronger contract enforcement and institutional stability increase international lending and lengthen its maturity.

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Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0617.

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Length: 37 pages
Date of creation: 01 May 2006
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Handle: RePEc:ays:ispwps:paper0617

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Related research
Keywords: Contract enforcement; Institutions; Stability; International Lending; Maturity;

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