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Do Debt Flows Crowd out Equity Flows or the Other Way Round?

  • Razin, A.
  • Sadka, E.
  • Yuen, C.-W.

In the presence of asymmetric information, the stage at which investment-financing decisions are made is crucial for the composition of international capital flows as well as for the efficiency of channeling savings into investment. This paper compares the implications of two extreme assumptions regarding the information possessed by the firms at their financing stage for thether foreign debt inflows may crowd out foreign equity flows or the other way round. The scope for corrective tax policy is examined. A welfare comparison between the two mechanisms of capital flows is provided.

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Paper provided by Tel Aviv in its series Papers with number 17-98.

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Length: 17 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:teavfo:17-98
Contact details of provider: Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Phone: 972-3-640-9255
Fax: 972-3-640-5815
Web page: http://econ.tau.ac.il/foerder/about
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  1. Gordon, R.H. & Bovenberg, A.L., 1994. "Why is capital so immobile internationally? : Possible explanations and implications for capital income taxation," Discussion Paper 1994-63, Tilburg University, Center for Economic Research.
  2. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis.
  3. Bovenberg, A.L. & Gordon, R.H., 1996. "Why is capital so immobile internationally? Possible explanation and implications for capital income taxation," Other publications TiSEM 6a131c21-fd9a-4d83-8d9a-7, Tilburg University, School of Economics and Management.
  4. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
  5. repec:ner:tilbur:urn:nbn:nl:ui:12-73564 is not listed on IDEAS
  6. 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.
  7. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  8. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  10. Tesar, Linda L & Werner, Ingrid M, 1995. "U.S. Equity Investment in Emerging Stock Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 109-29, January.
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