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Trade Dependency, Bargaining and External Debt

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  • International Monetary Fund

Abstract

This paper analyzes the factors determining the payment on outstanding debt in the presence of partial defaults, and the feasibility of renewed investment. We show that a higher relative size of sectors with lower substitutability between domestic and foreign products will increase the resource transfer ceiling. Even with a partial default, investment in highly trade dependent sectors with high productivity may be warranted. This investment can be implemented by a marginal relief of the present debt service, in exchange for investment in the proper sector. A way to partially overcome some of the monitoring problems associated with renewed investment is through direct investment.

Suggested Citation

  • International Monetary Fund, 1988. "Trade Dependency, Bargaining and External Debt," IMF Working Papers 1988/090, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1988/090
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=28740
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    Cited by:

    1. Joshua Aizenman & Eduardo R. Borensztein, 1989. "Strategic Investment in a Debt Bargaining Framework," NBER Working Papers 3019, National Bureau of Economic Research, Inc.

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