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The Shifting Composition of External Liabilities

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  • André Faria
  • Philip R. Lane
  • Paolo Mauro
  • Gian Maria Milesi-Ferretti

Abstract

What determines the composition of external liabilities, both across countries and over time? More specifically, which countries account for the massive increase in equity-like liabilities (foreign direct investment and portfolio equity), especially since the mid-1990s? The empirical analysis draws on the newly-released “External Wealth of Nations Mark II” dataset. In the cross-section, we find that larger, more open economies with a better institutional quality score have a greater equity share in external liabilities, which is also positively related to natural resource production. Along the time-series dimension, we find that the shift towards equity financing is stronger among those countries that have undertaken a greater degree of domestic financial reform.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp190.

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Date of creation: 05 Jan 2007
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Handle: RePEc:iis:dispap:iiisdp190

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  1. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," CEG Working Papers 20012, Trinity College Dublin, Department of Economics.
  2. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
  3. Wei, Shang-Jin, 2001. "Domestic Crony Capitalism and International Fickle Capital: Is There a Connection?," International Finance, Wiley Blackwell, vol. 4(1), pages 15-45, Spring.
  4. Newey, Whitney K. & McFadden, Daniel, 1986. "Large sample estimation and hypothesis testing," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 36, pages 2111-2245 Elsevier.
  5. Christian Dustmann & Costas Meghir, 1999. "Wages, experience and seniority," IFS Working Papers W99/01, Institute for Fiscal Studies.
  6. Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
  7. Rui Albuquerque, 2004. "The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment," International Finance 0405004, EconWPA.
  8. Paolo Mauro & André Faria, 2004. "Institutions and the External Capital Structure of Countries," IMF Working Papers 04/236, International Monetary Fund.
  9. Razin, Assaf & Sadka, Efraim & Yuen, Chi-Wa, 1998. "A pecking order of capital inflows and international tax principles," Journal of International Economics, Elsevier, vol. 44(1), pages 45-68, February.
  10. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
  11. Schnitzer, Monika, 2002. "Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," Economica, London School of Economics and Political Science, vol. 69(273), pages 41-67, February.
  12. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
  13. Horowitz, Joel L., 2001. "The Bootstrap," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 52, pages 3159-3228 Elsevier.
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