Financial reforms and capital flows: Insights from general equilibrium
AbstractAs a result of debt enforcement problems, many high-productivity firms in emerging economies are unable to pledge enough future profits to their creditors and this constrains the financing they can raise. Many have argued that, by relaxing these credit constraints, reforms that strengthen enforcement institutions would increase capital flows to emerging economies. This argument is based on a partial equilibrium intuition though, which does not take into account the origin of any additional resources that flow to high-productivity firms after the reforms. We show that some of these resources do not come from abroad, but instead from domestic low-productivity firms that are driven out of business as a result of the reforms. Indeed, the resources released by these low-productivity firms could exceed those absorbed by high-productivity ones so that capital flows to emerging economies might actually decrease following successful reforms. This result provides a new perspective on some recent patterns of capital flows in industrial and emerging economies.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1340.
Date of creation: Sep 2012
Date of revision:
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Web page: http://www.econ.upf.edu/
capital flows; financial reforms; productivity; economic growth; financial globalization;
Other versions of this item:
- Alberto Martin & Jaume Ventura, 2012. "Financial Reforms and Capital Flows: Insights from General Equilibrium," Working Papers 664, Barcelona Graduate School of Economics.
- Martin, Alberto & Ventura, Jaume, 2012. "Financial Reforms and Capital Flows: Insights from General Equilibrium," CEPR Discussion Papers 9174, C.E.P.R. Discussion Papers.
- Alberto Martin & Jaume Ventura, 2012. "Financial Reforms and Capital Flows: Insights from General Equilibrium," NBER Working Papers 18454, National Bureau of Economic Research, Inc.
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-20 (All new papers)
- NEP-CBA-2012-10-20 (Central Banking)
- NEP-DGE-2012-10-20 (Dynamic General Equilibrium)
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.:
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2011.
"Sovereigns, Upstream Capital Flows and Global Imbalances,"
Tinbergen Institute Discussion Papers
11-126/2, Tinbergen Institute.
- Alfaro, Laura & Kalemli-Ozcan, Sebnem & Volosovych, Vadym, 2011. "Sovereigns, Upstream Capital Flows, and Global Imbalances," CEPR Discussion Papers 8648, C.E.P.R. Discussion Papers.
- Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2011. "Sovereigns, Upstream Capital Flows and Global Imbalances," NBER Working Papers 17396, National Bureau of Economic Research, Inc.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2010.
"Adjusting to Capital Account Liberalization,"
CEP Discussion Papers
dp1014, Centre for Economic Performance, LSE.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Financial reform need not increase capital flows to emerging markets
by Economic Logician in Economic Logic on 2012-11-06 15:15:00
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