We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt and bankruptcy costs, we introduce a cost of external financing for the firm, which generates a precautionary demand for liquidity and an optimal liquidity management policy fo...

This paper examines the impact of military expenditure and income on external debt for a panel of six Middle Eastern countries; namely, Oman, Syria, Yemen, Bahrain, Iran, and Jordan, over the period 1988 to 2002. Using Pedroni's (2004) test for panel cointegration, we find that there is a long-run relationship between external debt, military expenditure and income. The estimated long-run elasti...

YERCEPTIONS OF A GLOBAL CRISIS have been rampant for over a decade. Third world nations fear their development prospects are being undermined by a series of devastating external shocks. Unprecedentedly high levels of foreign debt service, coupled with climbing interest rates and falling export revenues, have forced many developing countries to cut imports, restrict public-sector spending, curta...