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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. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
  2. Gourinchas, Pierre-Olivier & Jeanne, Olivier, 2003. "The Elusive Gains from International Financial Integration," CEPR Discussion Papers 3902, C.E.P.R. Discussion Papers.
  3. repec:bla:restud:v:73:y:2006:i:3:p:715-741 is not listed on IDEAS
  4. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
  5. Ann E. Harrison & Inessa Love & Margaret S. McMillan, 2002. "Global Capital Flows and Financing Constraints," NBER Working Papers 8887, National Bureau of Economic Research, Inc.
  6. Prasad, Eswar & Rajan, Raghuram G. & Subramanian, Arvind, 2007. "Foreign Capital and Economic Growth," IZA Discussion Papers 3186, Institute for the Study of Labor (IZA).
  7. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  8. Hui Tong & Shang-Jin Wei, 2009. "The Composition Matters; Capital Inflows and Liquidity Crunch During a Global Economic Crisis," IMF Working Papers 09/164, International Monetary Fund.
  9. Aizenman, Joshua & Pinto, Brian & Radziwill, Artur, 2004. "Sources for Financing Domestic Capital - is Foreign Saving a Viable Option for Developing Countries?," Santa Cruz Department of Economics, Working Paper Series qt7g18546z, Department of Economics, UC Santa Cruz.
  10. Cowan, Kevin & Raddatz, Claudio, 2013. "Sudden stops and financial frictions: Evidence from industry-level data," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 99-128.
  11. Julián 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," IDB Publications (Working Papers) 71178, Inter-American Development Bank.
  12. Joseph Joyce, 2011. "Financial Globalization and Banking Crises in Emerging Markets," Open Economies Review, Springer, vol. 22(5), pages 875-895, November.
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