Investment, Trade Liberalisation and Structural Adjustment

The disappointing investment response in developing countries to World Bank Structural Adjustment Lending (SALs) is considered in the light of a theoretical model of the impact of trade liberalisation and tightening balance-of-payments constraints on investment. The policy reforms under SALs are not as conducive to increased investment as they may appear to be at first sight. The tendency of countries to apply for SALs when confronted with serious balance-of-payments disequilibrium is also an important factor. However, there is no evidence that SALs are associated with a downward shift in the investment function.