We investigate the determinants of foreign borrowing costs in a stochastically growing economy. We find that these increase with the debt-wealth ratio, depending also upon the volatilities of domestic and foreign origin, and the length of debt contract. In addition, the sensitivity of the...

We develop a two-country stochastic growth model with production, relative price and sovereign default risks. Domestic production and relative price volatilities cause more fluctuations in the agents' portfolio decisions than the volatility of Foreign Direct Investment (FDI) production does....

We investigate how foreign debt and foreign direct investment (FDI) affect the growth and welfare of a stochastically growing small open economy. First, we find that foreign debt influences the growth of domestic wealth by lowering the cost of capital, while FDI affects the country's welfare by...

We develop a two-country stochastic growth model with production, relative price and sovereign default risks. Domestic production and relative price volatilities cause more fluctuations in the agents' portfolio decisions than the volatility of Foreign Direct Investment (FDI) production does....