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

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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.

Suggested Citation

  • Wasseem Mina & Jorge Martinez-Vazquez, 2006. "Contract Enforcement, Institutional Stability, and the Level and Maturity of International Debt," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0617, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:ays:ispwps:paper0617
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    Cited by:

    1. Mina, Wasseem, 2015. "Political risk guarantees and capital flows: The role of bilateral investment treaties," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-38.
    2. Mina, Wasseem, 2012. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," MPRA Paper 51920, University Library of Munich, Germany.
    3. Wasseem MIchel Mina, 2010. "Institutional Reforms Debate and FDI Flows to MENA Region: Does One “Best” Fit All?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1034, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    4. Mina, Wasseem Michel, 2012. "The Institutional Reforms Debate and FDI Flows to the MENA Region: The “Best” Ensemble," World Development, Elsevier, vol. 40(9), pages 1798-1809.
    5. Valev, Neven T., 2006. "Institutional uncertainty and the maturity of international loans," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 780-794, August.
    6. Valev, Neven T., 2007. "Uncertainty and international debt maturity," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(4), pages 372-386, October.

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    Keywords

    Contract enforcement; Institutions; Stability; International Lending; Maturity;

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