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Infrastructure, returns to scale and sovereign debt

Author

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  • Cem Karayalcin
  • Kathryn McCollister
  • Devashish Mitra

Abstract

This paper explores the nexus between the issue of sovereign debt and investment in infrastructure, emphasizing the case of economies of scale. The focus is on debt contracts that are incentive compatible. It is shown that public and private financial institutions may need to lend amounts above some threshold to force the borrowing sovereign to take full advantage of any economies of scale that may be present. Low levels of lending may or may not result in default. Sufficiently high amounts of lending may be needed to ensure repayment and may prove to be mutually beneficial.

Suggested Citation

  • Cem Karayalcin & Kathryn McCollister & Devashish Mitra, 2001. "Infrastructure, returns to scale and sovereign debt," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 11(3), pages 267-278.
    • Handle: RePEc:taf:jitecd:v:11:y:2001:i:3:p:267-278
    DOI: 10.1080/09638190210151400
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
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