IDEAS home Printed from https://ideas.repec.org/a/bla/econom/v69y2002i273p41-67.html
   My bibliography  Save this article

Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows

Author

Listed:
  • Schnitzer, Monika

Abstract

The paper compares the two standard forms of international investment in developing countries, debt and foreign direct investment (FDI), from a finance perspective. The sovereign risks associated with debt finance are shown to be generally less severe than the ones that come with FDI. FDI is chosen only if the foreign investor is more efficient in running the project, if the project is risky, and if the foreign investor has a good outside option which deters creeping expropriation. The sovereign risk problem of FDI can be alleviated if the host country and the foreign investor form a joint venture. Copyright 2002 by The London School of Economics and Political Science

Suggested Citation

  • Schnitzer, Monika, 2002. "Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," Economica, London School of Economics and Political Science, vol. 69(273), pages 41-67, February.
  • Handle: RePEc:bla:econom:v:69:y:2002:i:273:p:41-67
    as

    Download full text from publisher

    File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=ecca&volume=69&issue=273&year=&part=null
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Restrepo Ochoa, Diana C. & Correia, Ricardo & Peña, Juan Ignacio & Población, Javier, 2015. "Expropriation risk, investment decisions and economic sectors," Economic Modelling, Elsevier, vol. 48(C), pages 326-342.
    2. Kesternich, Iris & Schnitzer, Monika, 2010. "Who is afraid of political risk? Multinational firms and their choice of capital structure," Journal of International Economics, Elsevier, vol. 82(2), pages 208-218, November.
    3. Di Corato, Luca, 2013. "Profit sharing under the threat of nationalization," Resource and Energy Economics, Elsevier, vol. 35(3), pages 295-315.
    4. Kessing, Sebastian G. & Konrad, Kai A. & Kotsogiannis, Christos, 2006. "Federal tax autonomy and the limits of cooperation," Journal of Urban Economics, Elsevier, vol. 59(2), pages 317-329, March.
    5. Schmidt-Trenz, Hans-Jörg & Schmidtchen, Dieter, 2006. "Territoriality of Law and the International Trade Game: Towards a New Institutional Economics of International Transactions," CSLE Discussion Paper Series 2006-06, Saarland University, CSLE - Center for the Study of Law and Economics.
    6. André Faria & Philip R. Lane & Paolo Mauro & Gian Maria Milesi-Ferretti, 2007. "The Shifting Composition of External Liabilities," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 480-490, 04-05.
    7. Rodri­guez, Eric, 2008. "Cooperative ventures in emerging economies," Journal of Business Research, Elsevier, vol. 61(6), pages 640-647, June.
    8. Fuest, Clemens & Hebous, Shafik & Riedel, Nadine, 2011. "International debt shifting and multinational firms in developing economies," Economics Letters, Elsevier, vol. 113(2), pages 135-138.
    9. Muller, Thomas & Schnitzer, Monika, 2006. "Technology transfer and spillovers in international joint ventures," Journal of International Economics, Elsevier, vol. 68(2), pages 456-468, March.
    10. Indro, Daniel C. & Richards, Malika, 2007. "The determinants of foreign partner's equity ownership in Southeast Asian joint ventures," International Business Review, Elsevier, vol. 16(2), pages 177-206, April.
    11. Faria, Andr & Mauro, Paolo, 2009. "Institutions and the external capital structure of countries," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 367-391, April.
    12. Dreher, Axel & Nunnenkamp, Peter & Vadlamannati, Krishna Chaitanya, 2013. "The Role of Country-of-Origin Characteristics for Foreign Direct Investment and Technical Cooperation in Post-Reform India," World Development, Elsevier, vol. 44(C), pages 88-109.
    13. Müllner, Jakob, 2016. "From uncertainty to risk—A risk management framework for market entry," Journal of World Business, Elsevier, vol. 51(5), pages 800-814.
    14. Schmidtchen, Dieter, 2007. "Vereinheitlichung des Vertragsrechts in Europa - eine Lösung auf der Suche nach dem Problem? Die Sicht der Neuen Institutionenökonomik," CSLE Discussion Paper Series 2007-01, Saarland University, CSLE - Center for the Study of Law and Economics.
    15. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series 1830, CESifo Group Munich.
    16. repec:eee:finsta:v:35:y:2018:i:c:p:172-191 is not listed on IDEAS
    17. Anyangah, Joshua Okeyo, 2010. "Financing investment in environmentally sound technologies: Foreign direct investment versus foreign debt finance," Resource and Energy Economics, Elsevier, vol. 32(3), pages 456-475, August.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:69:y:2002:i:273:p:41-67. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/lsepsuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.