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The Shifting Composition of External Liabilities

  • André Faria
  • Philip R. Lane
  • Paolo Mauro
  • Gian Maria Milesi-Ferretti

What determines the composition of external liabilities, both across countries and over time? More specifically, which countries account for the massive increase in equity-like liabilities (foreign direct investment and portfolio equity), especially since the mid-1990s? The empirical analysis draws on the newly-released “External Wealth of Nations Mark II” dataset. In the cross-section, we find that larger, more open economies with a better institutional quality score have a greater equity share in external liabilities, which is also positively related to natural resource production. Along the time-series dimension, we find that the shift towards equity financing is stronger among those countries that have undertaken a greater degree of domestic financial reform.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp190.

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Date of creation: 05 Jan 2007
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Handle: RePEc:iis:dispap:iiisdp190
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  1. Mark Aguiar & Erik Hurst, 2005. "Lifecycle Prices and Production," NBER Working Papers 11601, National Bureau of Economic Research, Inc.
  2. Gian-Maria Milesi-Ferretti & Philip R. Lane, 1999. "The External Wealth of Nations; Measures of Foreign Assets and Liabilities for Industrial and Developing Countries," IMF Working Papers 99/115, International Monetary Fund.
  3. Schnitzer, Monika, 1997. "Debt vs. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," CEPR Discussion Papers 1608, C.E.P.R. Discussion Papers.
  4. Abdul Abiad & Enrica Detragiache & Thierry Tressel, 2010. "A New Database of Financial Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 281-302, June.
  5. Rui Albuquerque, 2004. "The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment," International Finance 0405004, EconWPA.
  6. 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.
  7. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
  8. 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.
  9. Razin, A & Sadka, E & Yuen, C-W, 1997. "A Pecking Order of Capital Inflows and International Tax Principles," Papers 12-97, Tel Aviv - the Sackler Institute of Economic Studies.
  10. Christian Dustmann & Costas Meghir, 2001. "Wages, experience and seniority," IFS Working Papers W01/01, Institute for Fiscal Studies.
  11. Faria, Andr & Mauro, Paolo, 2009. "Institutions and the external capital structure of countries," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 367-391, April.
  12. Newey, Whitney K. & McFadden, Daniel, 1986. "Large sample estimation and hypothesis testing," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 36, pages 2111-2245 Elsevier.
  13. Horowitz, Joel L., 2001. "The Bootstrap," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 52, pages 3159-3228 Elsevier.
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