Financing investment in environmentally sound technologies: Foreign direct investment versus foreign debt finance

Joshua Okeyo Anyangah

Resource and Energy Economics, 2010, vol. 32, issue 3, 456-475

Abstract: This paper develops a screening model to examine the relationship between alternative sources of private capital and investment in environmentally sound technologies (ESTs). In the model, a polluter (agent) must secure investment funds from the international financial markets in order to upgrade its production and abatement technology. The requisite capital can be obtained via either market loans (debt finance) or foreign direct investment (FDI). Under debt finance, the foreign financier supplies only capital and the relationship between the two parties is more [`]arms-length'. By contrast, under FDI, the investor delivers both capital and managerial skills. We use the model to derive the implications of debt finance for optimal investment decisions and compare them to those obtained under FDI. Investment incentives are more pronounced under debt finance.

Keywords: International; capital; flows; Environment; Asymmetric; information; Foreign; direct; investment; Debt; finance (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:32:y:2010:i:3:p:456-475

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