Working Paper: NBER ID: w3497
Authors: Sebastian Edwards
Abstract: One of the nest serious consequences of the debt crisis of 1982 has been the reduction in the accessibility to the world capital market for most developing countries. This situation has proved to be particularly serious for Latin American nations. At this juncture, a key question is how to improve the LLCs attractiveness for foreign capital flows. In this paper I explore the role of two potential sour of additional private capital inflows: increased direct foreign investment, and the debt-conversion mechanisms. The paper presents the results from an economic analysis of the determinants of the cross-country distribution of the OECD direct foreign investment (DFI) into the LDCs. Particular emphasis is given to assessing the relative importance of political variables of the recipient countries. The role of the debt-equity swaps as investments for reducing the extreme debt burden is also investigated, using the recent Chilean experience with these mechanisms as a case-study.
Keywords: Foreign Direct Investment; Debt-Equity Swaps; Developing Countries; Political Stability
JEL Codes: F21; F34; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government policies (H59) | Direct Foreign Investment (DFI) (F21) |
| Structural characteristics (J42) | Direct Foreign Investment (DFI) (F21) |
| Political considerations (D72) | Direct Foreign Investment (DFI) (F21) |
| Political stability (P16) | Direct Foreign Investment (DFI) (F21) |
| Political instability (O17) | Direct Foreign Investment (DFI) (F21) |
| Debt-equity swaps (G32) | Direct Foreign Investment (DFI) (F21) |