Debt vs. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows

Monika Schnitzer ()

No 1608, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper the two standard forms of international investment in developing countries – debt and foreign direct investment (FDI) – are compared from a finance perspective. We show that the sovereign risks associated with debt finance are generally less severe than those accompanying FDI. FDI is chosen only if the foreign investor is more efficient in running the project, if the project is risky and if the foreign investor has a good outside option which deters creeping expropriation. The sovereign risk problem of FDI can be alleviated if the host country and the foreign investor form a joint venture.

Keywords: Foreign Direct Investment; International Debt Crisis; Joint Ventures; Sovereign Risk (search for similar items in EconPapers)
JEL-codes: F2 F34 L14 O12 (search for similar items in EconPapers)
Date: 1997-03
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1608 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Debt v. foreign direct investment: The impact of sovereign risk on the structure of international capital flows (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1608

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1608

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().