Country Risk and the Organization of International Capital Transfer
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.
|Date of creation:||Apr 1987|
|Date of revision:|
|Publication status:||published as Calvo, G., R. Findlay, P. Kouri and J. deMacedo (eds.) Debt, Stabilization and Development. Oxford: Basil Blackwell, 1989.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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