Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries

44 Pages Posted: 27 Apr 2000 Last revised: 24 Jul 2022

See all articles by Sebastian Edwards

Sebastian Edwards

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area; National Bureau of Economic Research (NBER)

Date Written: October 1990

Abstract

One of the nest serious consequences of the debt crisis of 1982 has been the reduction in the accessibility to the world capital market for most developing countries. This situation has proved to be particularly serious for Latin American nations. At this juncture, a key question is how to improve the LLCs attractiveness for foreign capital flows. In this paper I explore the role of two potential sour of additional private capital inflows: increased direct foreign investment, and the debt-conversion mechanisms. The paper presents the results from an economic analysis of the determinants of the cross-country distribution of the OECD direct foreign investment (DFI) into the LDCs. Particular emphasis is given to assessing the relative importance of political variables of the recipient countries. The role of the debt-equity swaps as investments for reducing the extreme debt burden is also investigated, using the recent Chilean experience with these mechanisms as a case-study.

Suggested Citation

Edwards, Sebastian, Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing Countries (October 1990). NBER Working Paper No. w3497, Available at SSRN: https://ssrn.com/abstract=226689

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