The paper examines the applicability of GDP-linked bonds for the financing of develop-ing countries. These bonds are characterised by tying the coupon and/or redemption payments to the GDP of the issuing country. Along with an analysis of their pricing behaviour and of their behaviour in a portfolio context the study encompasses also a survey amongst financial experts in order to assess the prospects of success of this type of bond. Finally, the usefulness of a partial public guarantee of payments is examined. The paper provides evidence under which circumstances, for which investors and for which countries GDP-linked bonds might be an appropriate investment vehicle.
Schröder, Michael, Friedrich Heinemann, Susanne Kruse and Matthias Meitner (2007), Pay High in Good Times, Pay Low in Bad Times – Development Finance using GDP-linked Bonds, Journal of International Development 19, 667-683.