This article examines the relationship between direct foreign investment and external public debt accumulation in Third World states. Four basic connections between foreign investment and debt are examined. The first sees debt as resulting from the repatriation of profits by foreign investors. The second sees debt as a product of the effects of foreign investment on growth in the host state. The third posits that foreign investment leads to debt due to its impact on the host's terms of trade. Finally, a large foreign presence is regarded as creating greater debt by producing the desire to counterbalance the role played by foreigners. The results suggest that repatriation does lead to greater debt and that this effect is associated with investments in the manufacturing sector.
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