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Imperfect enforcement, foreign investment, and foreign aid
dc.contributor.author | Asiedu, Elizabeth | |
dc.contributor.author | Villamil, Anne P. | |
dc.date.accessioned | 2005-11-21T18:59:11Z | |
dc.date.available | 2005-11-21T18:59:11Z | |
dc.date.issued | 2002-09 | |
dc.identifier.citation | Asiedu, Elizabeth; Villamil, AP. Imperfect enforcement, foreign investment, and foreign aid. Macroeconomic Dynamics. Sep 2002. 6(4) : 476-495. | |
dc.identifier.uri | http://hdl.handle.net/1808/782 | |
dc.description.abstract | The lack of a supranational legal authority that can enforce private contracts across borders makes debt repayment in an international setting contingent on borrowers' willingness to pay rather than ability to pay. This market failure (i.e., inadequate enforcement) causes investment to fall short of its unconstrained level. This paper examines how foreign aid affects a country's willingness to honor private investment agreements. We consider two types of aid: technical assistance and loan subsidies. We show that when enforcement is inadequate, aid has the following effects: (i) it reduces default risk, promotes capital flows, and can, in principle, restore investment to its unconstrained level; (ii) when default risk is high, aid can increase the welfare of both the recipient and the donor country. Thus, foreign aid serves as an enforcement mechanism in an international setting. This provides a nonaltruistic rationale for foreign aid. Finally, we discuss the implications of providing bilateral versus multilateral aid (e.g., by individual countries versus multilateral organizations). | |
dc.format.extent | 146101 bytes | |
dc.format.mimetype | application/pdf | |
dc.language.iso | en_US | |
dc.publisher | Cambridge University Press | |
dc.subject | Foreign investment | |
dc.subject | Foreign aid | |
dc.subject | Enforcement | |
dc.subject | Multilateral organizations | |
dc.subject | Financial intermediation | |
dc.subject | Developing countries | |
dc.subject | Sovereign debt | |
dc.subject | Growth | |
dc.subject | Repudiation | |
dc.subject | Risk | |
dc.subject | Expropriation | |
dc.title | Imperfect enforcement, foreign investment, and foreign aid | |
dc.type | Article | |
dc.identifier.doi | 10.1017/S1365100501010070 | |
dc.rights.accessrights | openAccess |
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Center for Latin American and Caribbean Studies Scholarly Works [736]
Publications by faculty affiliated with the Center for Latin American and Caribbean Studies -
Economics Scholarly Works [185]
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Kansas African Studies Center Scholarly Works [272]
Publications by faculty and researchers affiliated with the Kansas African Studies Center