Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154814
Authors: 
Moretto, Michele
Valbonesi, Paola
Year of Publication: 
1997
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 51.1997
Abstract: 
At the start of the transition process in previously centrally planned economies the inflow of foreign capital was considered one of the main factors that allows the reduction of the economic and social costs of transformation. However, in practice, the role of foreign capital has appeared to be less significant than expected. Relying on the relationship between irreversible investment and the option pricing approach, we show that the link between sovereign risk and investment flexibility provides an explanation of capital inflow slow-downs and that such an explanation depends crucially on the expected persistence of policies affecting capital mobility.
Subjects: 
Transition economics
Capital mobility
Investment irreversibility
JEL: 
F21
P21
Document Type: 
Working Paper

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