Journal article
DISCOUNT FACTORS AND THRESHOLDS: FOREIGN INVESTMENT WHEN ENFORCEMENT IS IMPERFECT
Macroeconomic dynamics, Vol.4(1), pp.1-21
03/01/2000
DOI: 10.1017/S1365100500014012
Abstract
We consider a model that provides insight into the
well-known Folk theorem in economics that when the discount
factor β is sufficiently close to 1, expropriation will
never occur. Although this Folk theorem is true in our model,
our perspective is different. The discount factor β often
is described as a “deep structural parameter” that is difficult
to alter at a point in time. In contrast, we analyze the
determinants of two thresholds β and β*
that segment the unit interval on which β is defined into three
subintervals. These subintervals correspond to the three possible
equilibria for investment flows: autarky, underinvestment, and
unconstrained optimal investment. These thresholds are of
interest because they can be altered by specific policy
interventions. As a consequence, even if β is small, some level of
foreign investment can be supported. We construct measures of β
for 40 countries, characterize β and β*,
and discuss recent trends in investment flows.
Details
- Title: Subtitle
- DISCOUNT FACTORS AND THRESHOLDS: FOREIGN INVESTMENT WHEN ENFORCEMENT IS IMPERFECT
- Creators
- Elizabeth Asiedu - University of KansasAnne P. Villamil - University of Illinois Urbana-Champaign
- Resource Type
- Journal article
- Publication Details
- Macroeconomic dynamics, Vol.4(1), pp.1-21
- Publisher
- Cambridge University Press
- DOI
- 10.1017/S1365100500014012
- ISSN
- 1365-1005
- eISSN
- 1469-8056
- Number of pages
- 21
- Language
- English
- Date published
- 03/01/2000
- Academic Unit
- Economics
- Record Identifier
- 9984380420702771
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