Advanced Search
MyIDEAS: Login to save this paper or follow this series

Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?

Contents:

Author Info

  • Aizenman, Joshua
  • Pinto, Brian
  • Radziwill, Artur

Abstract

This paper proposes a new method for measuring the degree to which the domestic capital stock is self-financed. The main idea is to use the national accounts to construct a self-financing ratio, indicating what would have been the autarky stock of tangible capital supported by actual past domestic saving, relative to the actual stock of capital. We use the constructed measure of self-financing to evaluate the impact of the growing global financial integration on the sources of financing domestic capital stocks in developing countries. On average, 90% of the stock of capital in developing countries is self financed, and this fraction was surprisingly stable throughout the 1990s. The greater integration of financial markets has not changed the dispersion of self-financing rates, and the correlation between changes in de-facto financial integration and changes in self-financing ratios is statistically insignificant. There is no evidence of any “growth bonus†associated with increasing the financing share of foreign savings. In fact, the evidence suggests the opposite: throughout the 1990s, countries with higher selffinancing ratios grew significantly faster than countries with low self-financing ratios. This result persists even after controlling growth for the quality of institutions. We also find that higher volatility of the self-financing ratios is associated with lower growth rates, and that better institutions are associated with lower volatility of the self-financing ratios. These findings are consistent with the notion that financial integration may have facilitated diversification of assets and liabilities, but failed to offer new net sources of financing capital in developing countries.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.escholarship.org/uc/item/7g18546z.pdf;origin=repeccitec
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt7g18546z.

as in new window
Length:
Date of creation: 01 Jun 2004
Date of revision:
Handle: RePEc:cdl:ucscec:qt7g18546z

Contact details of provider:
Postal: Santa Cruz, CA 95064
Phone: (831) 459-2743
Fax: (831) 459-5077
Email:
Web page: http://www.escholarship.org/repec/ucscecon/
More information through EDIRC

Related research

Keywords: financial integration; self-financing; diversification; saving; investment;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jiandong Ju & Shang-Jin Wei, 2006. "A Solution to Two Paradoxes of International Capital Flows," NBER Working Papers, National Bureau of Economic Research, Inc 12668, National Bureau of Economic Research, Inc.
  2. Alesina, Alberto F & Tabellini, Guido, 1988. "External Debt, Capital Flight and Political Risk," CEPR Discussion Papers, C.E.P.R. Discussion Papers 253, C.E.P.R. Discussion Papers.
  3. Jody Overland & Christopher D. Carroll & David N. Weil, 2000. "Saving and Growth with Habit Formation," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 341-355, June.
  4. Pierre-Olivier Gourinchas & Olivier Jeanne, 2004. "The Elusive Gains From International Financial Integration," IMF Working Papers, International Monetary Fund 04/74, International Monetary Fund.
  5. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, Elsevier, vol. 55(2), pages 263-294, December.
  6. Kenneth Rogoff & Charles Wyplosz, 1999. "International Seminar on Macroeconomics," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number rogo99-1.
  7. Aart Kraay & Norman Loayza & Luis Serven & Jaume Ventura, 2000. "Country Portfolios," NBER Working Papers, National Bureau of Economic Research, Inc 7795, National Bureau of Economic Research, Inc.
  8. Etro, Federico & Ageloni, Ignazio & Alesina, Alberto, 2005. "International Unions," Scholarly Articles, Harvard University Department of Economics 4553008, Harvard University Department of Economics.
  9. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers, National Bureau of Economic Research, Inc 0310, National Bureau of Economic Research, Inc.
  10. Carroll, Christopher D. & Weil, David N., 1994. "Saving and growth: a reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 40(1), pages 133-192, June.
  11. Joshua Aizenman, 2002. "Financial Opening: Evidence and Policy Options," NBER Working Papers, National Bureau of Economic Research, Inc 8900, National Bureau of Economic Research, Inc.
  12. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  13. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers, National Bureau of Economic Research, Inc 5097, National Bureau of Economic Research, Inc.
  14. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 3(2), pages 169-88, April.
  15. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers, National Bureau of Economic Research, Inc 10907, National Bureau of Economic Research, Inc.
  16. Joshua Aizenman & Ilan Noy, 2003. "Endogenous Financial Openness: Efficiency and Political Economy Considerations," NBER Working Papers, National Bureau of Economic Research, Inc 10144, National Bureau of Economic Research, Inc.
  17. Mody, Ashoka & Murshid, Antu Panini, 2005. "Growing up with capital flows," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 249-266, January.
  18. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  19. Linda L. Tesar & Rene M. Stulz & Stephen Friedman & George N. Hatsopoulos, 1999. "The Role of Equity Markets in International Capital Flows," NBER Chapters, National Bureau of Economic Research, Inc, in: International Capital Flows, pages 235-306 National Bureau of Economic Research, Inc.
  20. Fischer, S. & Cooper, R.N. & Dornbusch, R. & Garber, P.M. & Massad, C. & Polak, J.J. & Rodrik, D. & Tarapore, S.S., 1998. "Should the IMF Pursue Capital-Account Convertibility?," Princeton Essays in International Economics, International Economics Section, Departement of Economics Princeton University, 207, International Economics Section, Departement of Economics Princeton University,.
  21. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdl:ucscec:qt7g18546z. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.