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Private capital flows, capital controls, and default risk

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  • Wright, Mark L.J.

Abstract

What has been the effect of the shift in emerging market capital flows toward private sector borrowers? Are emerging markets capital flows more efficient? If not, can controls on capital flows improve welfare? This paper studies these questions in a world with two forms of default risk. When private loans are enforceable, but there is the risk of national default, constrained efficient capital flows can be decentralized with private borrowing subject to individual borrowing constraints: no capital controls are necessary. However, when private agents may individually default, private lending is inefficient, and capital flow subsidies are potentially Pareto-improving.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 69 (2006)
Issue (Month): 1 (June)
Pages: 120-149

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Handle: RePEc:eee:inecon:v:69:y:2006:i:1:p:120-149

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Kocherlakota, Narayana & Pistaferri, Luigi, 2005. "Asset Pricing Implications of Pareto Optimality with Private Information," CEPR Discussion Papers 4930, C.E.P.R. Discussion Papers.
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  3. Cole, Harold L. & English, William B., 1992. "Two-sided expropriation and international equity contracts," Journal of International Economics, Elsevier, vol. 33(1-2), pages 77-104, August.
  4. Roberto Chang, 1993. "Private investment and sovereign debt negotiations," Working Paper 93-8, Federal Reserve Bank of Atlanta.
  5. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  6. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
  7. Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Center for International and Development Economics Research, Working Paper Series qt4qg3c42v, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Patrick J. Kehoe & Fabrizio Perri, 2002. "Competitive Equilibria With Limited Enforcement," NBER Working Papers 9077, National Bureau of Economic Research, Inc.
  9. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
  10. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  11. Karsten Jeske, 2005. "Private international debt with risk of repudiation," Working Paper 2001-16, Federal Reserve Bank of Atlanta.
  12. Akira Ariyoshi & Andrei Kirilenko & Inci Ötker & Bernard Laurens & Jorge Iván Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls," IMF Occasional Papers 190, International Monetary Fund.
  13. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
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