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Capital Flow Types, External Financing Needs, and Industrial Growth: 99 countries, 1991-2007

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  • Aizenman, Joshua
  • Sushko, Vladyslav

Abstract

manufacturing industries, 99 countries, 1991-2007, extending Rajan-Zingales (1998). We utilize externalfinance dependence measures in a series of cross-sectional regressions of manufacturing industries’growth rates covering 17 years. Net portfolio debt inflows are negatively associated with growth duringthe mid 1990s. The magnitudes of the negative effect of surges in portfolio debt inflows on growth aresubstantial in the late 1990s for a number of countries. The effect of debt inflows on growth in the 2000sis rather muted. Surges in portfolio equity inflows also exhibit a negative association with aggregategrowth in the manufacturing sector. For instance, the inflow surge during the financial liberalizationperiod, 1993-1994, is associated with a sharp decline in aggregate manufacturing sector growth, but a risein the growth of relatively more financially constrained industries. Equity inflows exhibited economicallysignificant positive impact on the growth of financially constrained industries, unlike their negativeimpact on the average manufacturing growth rate. FDI inflows exhibit a positive association withaggregate manufacturing growth during most of the sample period, both at the aggregate level andspecifically for the industries in need of external financing.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt3fb716f8.

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Date of creation: 10 Jul 2011
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Handle: RePEc:cdl:ucscec:qt3fb716f8

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Keywords: Social and Behavioral Sciences; external finance dependence; portfolio debt; portfolio equity; FDI inflows; manufacturing;

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  1. Carmen M. Reinhart & Vincent R. Reinhart, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Working Papers 14321, National Bureau of Economic Research, Inc.
  2. Ann E. Harrison & Inessa Love & Margaret S. McMillan, 2002. "Global Capital Flows and Financing Constraints," NBER Working Papers 8887, National Bureau of Economic Research, Inc.
  3. Julián Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises?: Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom-Bust Cycles," IDB Publications 71178, Inter-American Development Bank.
  4. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, Springer, vol. 22(5), pages 875-895, November.
  5. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  6. Gourinchas, Pierre-Olivier & Jeanne, Olivier, 2003. "The Elusive Gains from International Financial Integration," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3902, C.E.P.R. Discussion Papers.
  7. Prasad, Eswar & Rajan, Raghuram G. & Subramanian, Arvind, 2007. "Foreign Capital and Economic Growth," IZA Discussion Papers 3186, Institute for the Study of Labor (IZA).
  8. Hui Tong & Shang-Jin Wei, 2010. "The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis," Working Papers 172010, Hong Kong Institute for Monetary Research.
  9. Cowan, Kevin & Raddatz, Claudio, 2013. "Sudden stops and financial frictions: Evidence from industry-level data," Journal of International Money and Finance, Elsevier, Elsevier, vol. 32(C), pages 99-128.
  10. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  11. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Department of Economics, Working Paper Series qt7g18546z, Department of Economics, UC Santa Cruz.
  12. repec:bla:restud:v:73:y:2006:i:3:p:715-741 is not listed on IDEAS
  13. Hui Tong & Shang-Jin Wei, 2009. "The Composition Matters," IMF Working Papers 09/164, International Monetary Fund.
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Cited by:
  1. Joshua Aizenman & Brian Pinto & Vladyslav Sushko, 2013. "Financial sector ups and downs and the real sector in the open economy: Up by the stairs, down by the parachute," BIS Working Papers 411, Bank for International Settlements.
  2. Karine Gente & Miguel A. León-Ledesma & Carine Nourry, 2013. "External Constraints and Endogenous Growth: Why Didn’t Some Countries Benefit From Capital Flows?," Studies in Economics, Department of Economics, University of Kent 1304, Department of Economics, University of Kent.
  3. Aizenman, Joshua, 2011. "Trilemma and Financial Stability Configurations in Asia," ADBI Working Papers, Asian Development Bank Institute 317, Asian Development Bank Institute.
  4. Aizenman, Joshua & Pinto, Brian & Sushko, Vladyslav, 2011. "Financial sector ups and downs and the real sector : big hindrance, little help," Policy Research Working Paper Series 5860, The World Bank.
  5. Joshua Aizenman & Brian Pinto, 2013. "Managing Financial Integration and Capital Mobility—Policy Lessons from the Past Two Decades," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 636-653, 09.
  6. Calderon, Cesar & Kubota, Megumi, 2014. "Ride the wild surf : an investigation of the drivers of surges in capital inflows," Policy Research Working Paper Series 6753, The World Bank.
  7. de la Torre, Augusto & Didier, Tatiana & Pinat, Magali, 2014. "Can Latin America tap the globalization upside ?," Policy Research Working Paper Series 6837, The World Bank.
  8. Joshua Aizenman & Brian Pinto & Vladyslav Sushko, 2011. "Financial Sector Ups and Downs and the Real Sector: Up by the stairs, down by the parachute," NBER Working Papers 17530, National Bureau of Economic Research, Inc.

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