IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis

  • Hui Tong

    (International Monetary Fund)

  • Shang-Jin Wei

    (Columbia University and Tsinghua University and National Bureau of Economic Research and Centre for Economic Policy Research and Hong Kong Institute for Monetary Research)

This paper studies whether the volume and composition of capital flows affect the degree of credit crunch during the 2007-2009 crisis. Using data on 3823 firms in 24 emerging countries, we find that, on average, the decline in stock prices was more severe for firms that are intrinsically more dependent on external finance for working capital. Interestingly, while the volume of capital flows per se has no significant effect, the composition matters a lot. In particularly, greater dependence on non-FDI capital inflows before the crisis worsens the credit crunch during the crisis, while exposure to FDI alleviates the liquidity constraint.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.hkimr.org/uploads/publication/93/ub_full_0_2_250_wp-no-17_2010-final-.pdf
Download Restriction: no

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 172010.

as
in new window

Length: 39 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:hkm:wpaper:172010
Contact details of provider: Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Web page: http://www.hkimr.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
  2. Eichengreen, Barry & Mody, Ashoka & Nedeljkovic, Milan & Sarno, Lucio, 2012. "How the Subprime Crisis went global: Evidence from bank credit default swap spreads," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1299-1318.
  3. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors Before and during a Crisis," OECD Economics Department Working Papers 210, OECD Publishing.
  4. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
  5. Dell’Ariccia, G. & Igan, D. & Laeven, L., 2009. "Credit Booms and Lending Standards : Evidence from the Subprime Mortgage Market," Discussion Paper 2009-46 S, Tilburg University, Center for Economic Research.
  6. Thomas W. Bates & Kathleen M. Kahle & Rene M. Stulz, 2006. "Why Do U.S. Firms Hold So Much More Cash Than They Used To?," NBER Working Papers 12534, National Bureau of Economic Research, Inc.
  7. Wei, Shang-Jin, 2001. "Domestic Crony Capitalism and International Fickle Capital: Is There a Connection?," International Finance, Wiley Blackwell, vol. 4(1), pages 15-45, Spring.
  8. Josef Lakonishok & Andrei Shleifer & Robert W. Vishny, 1993. "Contrarian Investment, Extrapolation, and Risk," University of Chicago - George G. Stigler Center for Study of Economy and State 84, Chicago - Center for Study of Economy and State.
  9. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2008. "Systemic Sudden Stops: The Relevance of Balance-Sheet Effects and Financial Integration," IDB Publications (Working Papers) 6747, Inter-American Development Bank.
  10. Wei, Shang-Jin, 2006. "Connecting two views on financial globalization: Can we make further progress?," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 459-481, December.
  11. Kose, Ayhan & Prasad, Eswar & Rogoff, Kenneth & Wei, Shang-Jin, 2006. "Financial Globalization: A Reappraisal," CEPR Discussion Papers 5842, C.E.P.R. Discussion Papers.
  12. Raymond Fisman & Inessa Love, 2003. "Financial Dependence and Growth Revisited," NBER Working Papers 9582, National Bureau of Economic Research, Inc.
  13. Dell'Ariccia, Giovanni & Detragiache, Enrica & Rajan, Raghuram, 2008. "The real effect of banking crises," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 89-112, January.
  14. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  15. Kristin J. Forbes, 2003. "One Cost of the Chilean Capital Controls: Increased Financial Constraints for Smalles Traded Firms," NBER Working Papers 9777, National Bureau of Economic Research, Inc.
  16. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  17. John M. Griffin, 2002. "Are the Fama and French Factors Global or Country Specific?," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 783-803.
  18. Claessens, Stijn & Dooley, Michael P & Warner, Andrew, 1995. "Portfolio Capital Flows: Hot or Cold?," World Bank Economic Review, World Bank Group, vol. 9(1), pages 153-74, January.
  19. Klingebiel, Daniela & Kroszner, Randall S & Laeven, Luc, 2006. "Banking Crises, Financial Dependence and Growth," CEPR Discussion Papers 5623, C.E.P.R. Discussion Papers.
  20. Heitor Almeida & Murillo Campello & Bruno Laranjeira & Scott Weisbenner, 2009. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," NBER Working Papers 14990, National Bureau of Economic Research, Inc.
  21. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
  22. Mark, Aguiar & Gopinath, Gita, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," Scholarly Articles 3634155, Harvard University Department of Economics.
  23. 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.
  24. Paolo Mauro & Andrei A. Levchenko, 2006. "Do Some Forms of Financial Flows Help Protect From Sudden Stops?," IMF Working Papers 06/202, International Monetary Fund.
  25. Jong-Wha Lee & Eduardo Borensztein, 2000. "Financial Crisis and Credit Crunch in Korea; Evidence From Firm-Level Data," IMF Working Papers 00/25, International Monetary Fund.
  26. Shang-Jin Wei & Yi Wu, 2001. "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises," NBER Working Papers 8187, National Bureau of Economic Research, Inc.
  27. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
  28. Hui Tong & Shang-Jin Wei, 2008. "Real Effects of the Subprime Mortgage Crisis: Is it a Demand or a Finance Shock?," NBER Working Papers 14205, National Bureau of Economic Research, Inc.
  29. M. Ayhan Kose & Kenneth Rogoff & Eswar Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
  30. Mihir A. Desai & C. Fritz Foley & Kristin J. Forbes, 2008. "Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciations," Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2857-2888, November.
  31. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
  32. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, vol. 80(3), pages 677-722, June.
  33. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  34. Mark Aguiar & Gita Gopinath, 2005. "Fire-Sale Foreign Direct Investment and Liquidity Crises," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 439-452, August.
  35. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:172010. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.