Quarterly Review 1612

Back to Publication

Direct Investment: A Doubtful Alternative to International Debt

Harold L. Cole - Consultant
William B. English

Winter 1992

Abstract
The paper considers a model in which private foreign investors make direct long-lived capital investments in a small developing country that is subject to stochastic shocks to production. Depending upon the preferences of the host country, we find that expropriation can occur because of either desperation or opportunism. We show that under reasonable assumptions, increased investment makes expropriation less likely to occur and that the level of investment chosen by atomistic foreign investors may be nonoptimal.


Reprinted From: Journal of International Economics (Vol. 30, No. 3-4, May 1991, pp. 201-227)

Download Paper (PDF)

 
Latest

Movin' on up, fedgazette, October 2014