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Composition of International Capital Flows: A Survey

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  • Koralai Kirabaeva

    (Bank of Canada)

  • Assaf Razin

    (Cornell University and Hong Kong Institute for Monetary Research)

Abstract

We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks, and discuss the following implications for composition of capital flows: (1) home-court information advantage; (2) panic-based capital-flow reversals; (3) information-liquidity trade-off in the presence of source and host country liquidity shocks; (4) moral hazard in international debt contracts; and (5) risk sharing role of domestic bonds in the presence of home bias in goods and equities.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 142011.

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Length: 32 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:hkm:wpaper:142011

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Cited by:
  1. Humanicki, Marcin & Kelm, Robert & Olszewski, Krzysztof, 2013. "Foreign Direct Investment and Foreign Portfolio Investment in the contemporary globalized world: should they be still treated separately?," MPRA Paper 58410, University Library of Munich, Germany, revised Sep 2014.
  2. Martin Schmitz, 2009. "Financial Reforms and Capital Flows to Emerging Europe," The Institute for International Integration Studies Discussion Paper Series iiisdp278, IIIS.
  3. Davide Furceri & Stéphanie Guichard & Elena Rusticelli, 2011. "Medium-Term Determinants of International Investment Positions: The Role of Structural Policies," OECD Economics Department Working Papers 863, OECD Publishing.
  4. G. Andrew Karolyi & David T. Ng & Eswar S. Prasad, 2013. "The Coming Wave," Working Papers 082013, Hong Kong Institute for Monetary Research.
  5. Anton Jevcak & Ralph Setzer & Massimo Suardi, 2010. "Determinants of Capital Flows to the New EU Member States Before and During the Financial Crisis," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 425, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.

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