Foreign investment is typically considered an important source of growth for developing countries. This article describes the legal protection granted to foreign investors and its enforcement mechanisms. Governments have signed international investment agreements intended to protect foreign...

In this article, we study the interplay between political factors and default decisions. First, we survey two branches of theoretical studies. One shows that governments may be willing to repay their debt because it is in the best interest of local agents with political power. The other one...

This article discusses the economics of sovereign defaults, summarizing lessons from existing work on this issue. In particular, the article describes the costs associated with a sovereign default episode, identifies circumstances that are likely to lead to a default, and discusses how...

We study a model of equilibrium sovereign default in which the government issues cocos (contingent convertible bonds) that stipulate a suspension of debt payments when the government faces liquidity shocks in the form of an increase of the bondholders' risk aversion. We find that in spite of...

"How important is financial development for economic development? A costly state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for...