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Foreign Debt, Sanctions and Investment: A Model with Politically Unstable Less Developed Countries

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  • Dalmazzo, Alberto
  • Marini, Giancarlo

Abstract

This paper analyses the underinvestment problem in less developed countries (LDCs) characterized by political uncertainty. It is shown that both the strategic use of foreign debt and direct foreign investment can reduce the extent of underinvestment, determined by insecure property rights, when international sanctions are operative. In particular, foreign debt may be the most effective tool to increase the investors' share and promote physical capital accumulation. Copyright @ 2000 by John Wiley & Sons, Ltd. All rights reserved.

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  • Dalmazzo, Alberto & Marini, Giancarlo, 2000. "Foreign Debt, Sanctions and Investment: A Model with Politically Unstable Less Developed Countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(2), pages 141-153, April.
  • Handle: RePEc:ijf:ijfiec:v:5:y:2000:i:2:p:141-53
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    Cited by:

    1. Farla, Kristine & de Crombrugghe, Denis & Verspagen, Bart, 2016. "Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In?," World Development, Elsevier, vol. 88(C), pages 1-9.
    2. Morrissey, Oliver & Udomkerdmongkol, Manop, 2012. "Governance, Private Investment and Foreign Direct Investment in Developing Countries," World Development, Elsevier, vol. 40(3), pages 437-445.
    3. Selim Aren & Lutfihak Alpkan & Bulent Sezen & Ziya Alper Guncu, 2011. "Drivers of firms’ debt ratios: evidence from Taiwanese and Turkish firms," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 13(1), pages 53-70, May.
    4. Udomkerdmongkol, Manop & Morrissey, Oliver, 2008. "Political Regime, Private Investment, and Foreign Direct Investment in Developing Countries," WIDER Working Paper Series 109, World Institute for Development Economic Research (UNU-WIDER).
    5. Holger Görg & Oliver Morrissey & Manop Udomkerdmongkol, "undated". "Investment and Sources of Investment Finance in Developing Countries," Discussion Papers 07/16, University of Nottingham, GEP.

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