TY  - JOUR
AU  - Eaton,Jonathan
AU  - Gersovitz,Mark
TI  - Country Risk and the Organization of International Capital Transfer
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2204
PY  - 1987
Y2  - March 1987
UR  - http://www.nber.org/papers/w2204
L1  - http://www.nber.org/papers/w2204.pdf
N1  - Author contact info:
Jonathan Eaton
Department of Economics
Penn State University
608 Kern Graduate Building
University Park, PA 16802-3306
Tel: (814) 865 - 8871
Fax: (814) 863 - 4775
E-Mail: jxe22@psu.edu
AB  - Foreign portfolio investment is threatened by the risk of default and repudiation, while direct foreign investment is threatened by the risk of expropriation. These two contractual forms of investment can differ substantially in: (1) the amount of capital they can transfer from abroad to capital-importing countries; (2) the shadow cost of capital and (3) their implications for the tax policy of the host. The interaction of public borrowing from abroad with investments abroad by private citizens of the borrowing country can imply multiple equilibria with very different welfare consequences. One equilibrium involves private inflows and repayment of public debt. Another is characterized by capital flight and default.
ER  -