Strategic Investment in a Debt Bargaining Framework

32 Pages Posted: 15 Feb 2006

See all articles by Eduardo Borensztein

Eduardo Borensztein

Inter-American Development Bank (IADB)

Date Written: July 12, 1989

Abstract

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.

JEL Classification: 433

Suggested Citation

Borensztein, Eduardo, Strategic Investment in a Debt Bargaining Framework (July 12, 1989). IMF Working Paper No. 89/55, Available at SSRN: https://ssrn.com/abstract=884849

Eduardo Borensztein

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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