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Capital Flow Types, External Financing Needs, and Industrial Growth: 99 countries, 1991-2007

  • Aizenman, Joshua
  • Sushko, Vladyslav

manufacturing industries, 99 countries, 1991-2007, extending Rajan-Zingales (1998). We utilize externalfinance dependence measures in a series of cross-sectional regressions of manufacturing industries’growth rates covering 17 years. Net portfolio debt inflows are negatively associated with growth duringthe mid 1990s. The magnitudes of the negative effect of surges in portfolio debt inflows on growth aresubstantial in the late 1990s for a number of countries. The effect of debt inflows on growth in the 2000sis rather muted. Surges in portfolio equity inflows also exhibit a negative association with aggregategrowth in the manufacturing sector. For instance, the inflow surge during the financial liberalizationperiod, 1993-1994, is associated with a sharp decline in aggregate manufacturing sector growth, but a risein the growth of relatively more financially constrained industries. Equity inflows exhibited economicallysignificant positive impact on the growth of financially constrained industries, unlike their negativeimpact on the average manufacturing growth rate. FDI inflows exhibit a positive association withaggregate manufacturing growth during most of the sample period, both at the aggregate level andspecifically for the industries in need of external financing.

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Paper provided by Department of Economics, UC Santa Cruz in its series Santa Cruz Department of Economics, Working Paper Series with number qt3fb716f8.

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Date of creation: 10 Jul 2011
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Handle: RePEc:cdl:ucscec:qt3fb716f8
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  1. Eswar S. Prasad & Raghuram G. Rajan & Arvind Subramanian, 2007. "Foreign Capital and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 153-230.
  2. Pierre-Olivier Gourinchas & Olivier Jeanne, 2003. "The Elusive Gains from International Financial Integration," NBER Working Papers 9684, National Bureau of Economic Research, Inc.
  3. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  4. Cowan, Kevin & Raddatz, Claudio, 2011. "Sudden stops and financial frictions : evidence from industry level data," Policy Research Working Paper Series 5605, The World Bank.
  5. Joshua Aizenman & Brian Pinto & Artur Radziwill, 2004. "Sources for Financing Domestic Capital -- Is Foreign Saving a Viable Option for Developing Countries?," NBER Working Papers 10624, National Bureau of Economic Research, Inc.
  6. Hui Tong & Shang-Jin Wei, 2010. "The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis," Working Papers 172010, Hong Kong Institute for Monetary Research.
  7. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  8. Harrison, Ann E. & Love, Inessa & McMillan, Margaret S., 2004. "Global capital flows and financing constraints," Journal of Development Economics, Elsevier, vol. 75(1), pages 269-301, October.
  9. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, vol. 22(5), pages 875-895, November.
  10. Julian Caballero, 2012. "Do Surges in International Capital Inflows Influence the Likelihood of Banking Crises? Cross-Country Evidence on Bonanzas in Capital Inflows and Bonanza-Boom- Bust Cycles," Research Department Publications 4775, Inter-American Development Bank, Research Department.
  11. Carmen M. Reinhart & Vincent R. Reinhart, 2008. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Working Papers 14321, National Bureau of Economic Research, Inc.
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