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Country Risk and the Organization of International Capital Transfer

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Author Info
Jonathan Eaton
Mark Gersovitz

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Abstract

Foreign portfolio investment is threatened by the risk of default and repudiation, while direct foreign investment is threatened by the risk of expropriation. These two contractual forms of investment can differ substantially in: (1) the amount of capital they can transfer from abroad to capital-importing countries; (2) the shadow cost of capital and (3) their implications for the tax policy of the host. The interaction of public borrowing from abroad with investments abroad by private citizens of the borrowing country can imply multiple equilibria with very different welfare consequences. One equilibrium involves private inflows and repayment of public debt. Another is characterized by capital flight and default.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2204.

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Date of creation: Mar 1987
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Handle: RePEc:nbr:nberwo:2204

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  1. Stephen Turnovsky, 2000. "Growth in an Open Economy: Some Recent Developments," Discussion Papers in Economics at the University of Washington 0015, Department of Economics at the University of Washington. [Downloadable!]
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  2. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1997. "Quantitative Implications of the Home Bias: Foreign Underinvestment, Domestic Oversaving, and Corrective Taxation," NBER Working Papers 6339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Dennis P J Botman & Cees G H Diks, 2002. "Location of Investors and Capital Flight," Tinbergen Institute Discussion Papers 02-013/1, Tinbergen Institute. [Downloadable!]
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  4. Wildasin, David E., 1997. "Externalities and bailouts : hard and soft budget constraints in intergovernmental fiscal relations," Policy Research Working Paper Series 1843, The World Bank. [Downloadable!]
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  5. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 2001. "Why International Equity Inflows to Emerging Markets are Inefficient and Small Relative to International Debt Flows," NBER Working Papers 8659, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Marcelo Bianconi, 2004. "Transfer Programs and Consumption under Alternative Insurance Schemes and Liquidity Constraints," Discussion Papers Series, Department of Economics, Tufts University 0411, Department of Economics, Tufts University. [Downloadable!]
  7. Jonathan Eaton & Raquel Fernandez, 1995. "Sovereign Debt," NBER Working Papers 5131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Stephen Turnovsky, 1999. "Knife-Edge Conditions and the Macroeconomics of Small Open Economies," Discussion Papers in Economics at the University of Washington 0031, Department of Economics at the University of Washington. [Downloadable!]
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  9. Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1998. "Capital Flows with Debt-And Equity-Financed Invesment: Equilibrium Structure and Efficiency Implications," CEMA Working Papers: Serie Documentos de Trabajo. 136, Universidad del CEMA. [Downloadable!]
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  10. Cem Karayalcin & Kathryn McCollister & Devashish Mitra, 2002. "Infrastructure, returns to scale and sovereign debt," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 11(3), pages 267-278, September. [Downloadable!] (restricted)
  11. Hossein Kazemi & Ayla Ogus, 2008. "The Determinants of the Secondary Market Price of Less Developed Countries’ Debt," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(2), pages 153-164, June. [Downloadable!] (restricted)
  12. Theo S Eicher & Uwe Walz & Stephen Turnovsky, 2000. "Financial Liberalization and Capital Flow Reversals:," Discussion Papers in Economics at the University of Washington 0003, Department of Economics at the University of Washington. [Downloadable!]
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  13. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," NBER Working Papers 2610, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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