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 tight
ening balance-of-payments constraints on investment. The policy reform
s 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 SA
Ls when confronted with serious balance-of-payments disequilibrium is
also an important factor. However there is no evidence that SALs are a
ssociated with a downward shift in the investment function.