Low investment and large LDC debt in the 1980s
Abstract
This paper aims at disentangling the correlation between LDC debt and investment in the 1980s. The author shows that a large debt was not an unconditional predictor of low investment in the 1980s, nor was investment abnormally low when compared to a 'financial-autarky' rate calculated in the text. He does find, however, that the actual service of the debt crowded out investment. For the rescheduling countries, he shows that 1 percent of GDP paid abroad reduced domestic investment by 0.3 percent of GDP. This is identical to the correlation between investment and foreign finance observed in the 1960s.
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