In the presence of asymmetric information, the stage at which financing decisions are made about investment projects in a small open economy is crucial for the composition of international capital inflows as well as for the efficiency of channeling savings into investment. This paper compares...

Imagine a very large town, at the centre of a fertile plain which is crossed by no navigable river or canal. Throughout the plain the soil is capable of cultivation and of the same fertility. Far from the town, the plain turns into uncultivated wildernesss which cuts off all communication...