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Private capital flows, capital controls, and default risk

  • Wright, Mark L.J.

What has been the effect of the shift in emerging market capital flows toward private sector borrowers? Are emerging markets capital flows more efficient? If not, can controls on capital flows improve welfare? This paper studies these questions in a world with two forms of default risk. When private loans are enforceable, but there is the risk of national default, constrained efficient capital flows can be decentralized with private borrowing subject to individual borrowing constraints: no capital controls are necessary. However, when private agents may individually default, private lending is inefficient, and capital flow subsidies are potentially Pareto-improving.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 69 (2006)
Issue (Month): 1 (June)
Pages: 120-149

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Handle: RePEc:eee:inecon:v:69:y:2006:i:1:p:120-149
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. Patrick J. Kehoe & Fabrizio Perri, 2002. "Competitive Equilibria With Limited Enforcement," NBER Working Papers 9077, National Bureau of Economic Research, Inc.
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  3. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
  4. Akira Ariyoshi & Andrei Kirilenko & Inci Ötker & Bernard Laurens & Jorge Iván Canales Kriljenko & Karl Friedrich Habermeier, 2000. "Capital Controls: Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
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  8. Bulow, Jeremy & Rogoff, Kenneth, 1989. "Sovereign Debt: Is to Forgive to Forget?," American Economic Review, American Economic Association, vol. 79(1), pages 43-50, March.
  9. Cole, Harold L. & English, William B., 1992. "Two-sided expropriation and international equity contracts," Journal of International Economics, Elsevier, vol. 33(1-2), pages 77-104, August.
  10. Roberto Chang, 1993. "Private investment and sovereign debt negotiations," Working Paper 93-8, Federal Reserve Bank of Atlanta.
  11. Cole, Harold L. & English, William B., 1991. "Expropriation and direct investment," Journal of International Economics, Elsevier, vol. 30(3-4), pages 201-227, May.
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