Trade Dependency, Bargaining and External Debt
28 Pages Posted: 15 Feb 2006
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Trade Dependency, Bargaining and External Debt
Trade Dependency, Bargaining and External Debt
Date Written: October 17, 1988
Abstract
This paper analyzes the factors determining the payment on outstanding debt in the presence of partial defaults, and the feasibility of renewed investment. We show that a higher relative size of sectors with lower substitutability between domestic and foreign products will increase the resource transfer ceiling. Even with a partial default, investment in highly trade dependent sectors with high productivity may be warranted. This investment can be implemented by a marginal relief of the present debt service, in exchange for investment in the proper sector. A way to partially overcome some of the monitoring problems associated with renewed investment is through direct investment.
JEL Classification: 400
Suggested Citation: Suggested Citation
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