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Strategic Investment in a Debt Bargaining Framework

Listed author(s):
  • Joshua Aizenman
  • Eduardo R. Borensztein

This paper analyzes the strategic role of investment from a debtor country's perspective. The framework is one in which, if the debtor country is unable to meet debt obligations, a bargaining regime determines the amount of debt repayment. In the context of a two-country real trade model, debt repayment is equal to the trade surplus of the debtor. The outcome of the bargaining game will therefore be dependent (among other things) on the level of production in the debtor country. In this framework, the paper shows that productive investment may increase or decrease the bargaining power of the debtor country. This ambiguity appears to be fairly robust.

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File URL: http://www.nber.org/papers/w3019.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3019.

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Length:
Date of creation: Jun 1989
Publication status: published as Journal of International Trade and Development, June 1993, pp. 43-64
Handle: RePEc:nbr:nberwo:3019
Note: ITI IFM
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National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

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  1. Aizenman, Joshua, 1991. "Trade dependency, bargaining and external debt," Journal of International Economics, Elsevier, vol. 31(1-2), pages 101-120, August.
  2. Eduardo Borensztein & Atish Rex Ghosh, 1989. "Foreign Borrowing and Export Promotion Policies," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 904-933, December.
  3. Jeffrey Sachs, 1988. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Working Papers 2644, National Bureau of Economic Research, Inc.
  4. W. Max Corden, 1988. "Debt Relief and Adjustment Incentives," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 628-643, December.
  5. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
  6. Rotemberg, Julio J., 1991. "Sovereign debt buybacks can lower bargaining costs," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 330-348, September.
  7. Alvin E Roth, 2008. "Axiomatic Models of Bargaining," Levine's Working Paper Archive 122247000000002376, David K. Levine.
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