Working Paper: NBER ID: w2771
Authors: Elhanan Helpman
Abstract: Recent attempts to resolve the international debt crisis have lead some countries to engage in debt-equity swaps. The paper explores conditions under which such transactions are beneficial to the debtor as well as the creditors. It identifies a market failure that may prevent the emergence of actually beneficial swaps and analyzes the effects of swaps on the investment level in the debtor country. The latter helps to evaluate the contribution of this policy to future difficulties with debt service payments.
Keywords: debt-equity swaps; investment; international debt crisis
JEL Codes: F34; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt-equity swaps (G32) | Pareto improvements (D61) |
| debt-equity swaps (G32) | investment levels (F21) |
| debt forgiveness (H63) | investment levels (F21) |
| debt-equity swaps (G32) | share prices (G12) |
| multiple states of productivity (O49) | existence of mutually beneficial swaps (D52) |
| debt-equity swaps (G32) | expected utility of debtor (D11) |
| debt-equity swaps (G32) | expected utility of creditor (G33) |
| debt-equity swaps (G32) | externalities among creditors (G33) |