Debt Overhang, Debt Reduction and Investment: The Case of the Philippines

27 Pages Posted: 15 Feb 2006

See all articles by Eduardo Borensztein

Eduardo Borensztein

Inter-American Development Bank (IADB)

Date Written: September 1990

Abstract

While there is a substantial body of literature on the effects of "debt overhang" on investment in heavily-indebted countries, there is surprisingly little empirical work available on this subject. This paper tests the hypothesis that the stock of foreign debt acts as a disincentive to private investment in the specific case of the Philippines. The empirical estimates provide support for this hypothesis, particularly after 1982. The estimates indicate that a $1.3 billion debt reduction (such as the one completed through the buyback operation in early 1990) would increase investment demand by something between one half and two percentage points of GNP.

JEL Classification: 121, 433

Suggested Citation

Borensztein, Eduardo, Debt Overhang, Debt Reduction and Investment: The Case of the Philippines (September 1990). IMF Working Paper No. 90/77, Available at SSRN: https://ssrn.com/abstract=884986

Eduardo Borensztein (Contact Author)

Inter-American Development Bank (IADB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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