Debt Overhang, Debt Reduction and Investment: The Case of the Philippines

International Monetary Fund

No 1990/077, IMF Working Papers from International Monetary Fund

Abstract: While there is a substantial body of literature on the effects of “debt overhang” on investment in heavily-indebted countries, there is surprisingly little empirical work available on this subject. This paper tests the hypothesis that the stock of foreign debt acts as a disincentive to private investment in the specific case of the Philippines. The empirical estimates provide support for this hypothesis, particularly after 1982. The estimates indicate that a $1.3 billion debt reduction (such as the one completed through the buyback operation in early 1990) would increase investment demand by something between one half and two percentage points of GNP.

Keywords: WP; bank debt; debtor country; real interest rate; debt reduction; debt overhang; buyback operation; hypothesis state; debt situation; investment function; baseline projection; debt buyback operation; Debt burden; Debt reduction; Private debt; Real interest rates; Global (search for similar items in EconPapers)
Pages: 30
Date: 1990-01-01
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Citations: View citations in EconPapers (12)

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