Strategic Investment in a Debt-Bargaining Framework

Joshua Aizenman, Eduardo Borensztein

Research output: Contribution to journalArticlepeer-review


In this paper we analyze the strategic role of investment from a debtor country’s perspective. The framework is one in which, if the debtor country is unable to meet debtor obligations, a bargaining regime determines the amount of debt repayment. In the context of a two-country real trade model, debt repayment is equal to the trade surplus of the debtor. The outcome of the bargaining game will therefore be dependent (among other things) on the level of production in the debtor country. The paper shows that productive investment may increase or decrease the bargaining power of the debtor country. This ambiguity appears to be fairly robust.

Original languageEnglish
Pages (from-to)43-63
Number of pages21
JournalJournal of International Trade and Economic Development
Issue number1
StatePublished - 1 Jan 1993
Externally publishedYes

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Aerospace Engineering


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