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

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  • Joshua Aizenman
  • Vladyslav Sushko

Abstract

We examine the differential impact of portfolio debt, portfolio equity, and FDI inflows on 37 manufacturing industries, 99 countries, 1991-2007, extending Rajan-Zingales (1998). We utilize external finance 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 during the mid 1990s. The magnitudes of the negative effect of surges in portfolio debt inflows on growth are substantial in the late 1990s for a number of countries. The effect of debt inflows on growth in the 2000s is rather muted. Surges in portfolio equity inflows also exhibit a negative association with aggregate growth in the manufacturing sector. For instance, the inflow surge during the financial liberalization period, 1993-1994, is associated with a sharp decline in aggregate manufacturing sector growth, but a rise in the growth of relatively more financially constrained industries. Equity inflows exhibited economically significant positive impact on the growth of financially constrained industries, unlike their negative impact on the average manufacturing growth rate. FDI inflows exhibit a positive association with aggregate manufacturing growth during most of the sample period, both at the aggregate level and specifically for the industries in need of external financing.

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  • Joshua Aizenman & Vladyslav Sushko, 2011. "Capital Flow Types, External Financing Needs, and Industrial Growth: 99 countries, 1991-2007," NBER Working Papers 17228, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17228
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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.
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    7. Hui Tong & Shang-Jin Wei, 2011. "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2023-2052.
    8. 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) 3971, Inter-American Development Bank.
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    Citations

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    Cited by:

    1. Joshua Aizenman, 2011. "Trilemma and Financial Stability Configurations in Asia," Finance Working Papers 23219, East Asian Bureau of Economic Research.
    2. Aizenman, Joshua & Pinto, Brian & Sushko, Vladyslav, 2013. "Financial sector ups and downs and the real sector in the open economy: Up by the stairs, down by the parachute," Emerging Markets Review, Elsevier, vol. 16(C), pages 1-30.
    3. Gente, Karine & León-Ledesma, Miguel A. & Nourry, Carine, 2015. "External constraints and endogenous growth: Why didn't some countries benefit from capital flows?," Journal of International Money and Finance, Elsevier, vol. 56(C), pages 223-249.
    4. Joshua Aizenman & Brian Pinto, 2013. "Managing Financial Integration and Capital Mobility—Policy Lessons from the Past Two Decades," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 636-653, September.
    5. Aizenman, Joshua & Pinto, Brian, 2011. "Managing Financial Integration and Capital Mobility— Policy lessons from the past two decades," Santa Cruz Department of Economics, Working Paper Series qt9j53m1tp, Department of Economics, UC Santa Cruz.
    6. Maria Tsiapa, 2014. "Industrial Growth In The Integrated European Economic Space," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 5(2).
    7. Antonio Ciccone & Elias Papaioannou, 2016. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," NBER Working Papers 22368, National Bureau of Economic Research, Inc.
    8. repec:eip:journl:y:2016:i:4:p:48-69 is not listed on IDEAS
    9. Calderon, Cesar & Kubota, Megumi, 2014. "Ride the wild surf : an investigation of the drivers of surges in capital inflows," Policy Research Working Paper Series 6753, The World Bank.
    10. Joshua Aizenman & Brian Pinto & Vladyslav Sushko, 2011. "Financial Sector Ups and Downs and the Real Sector: Up by the stairs, down by the parachute," NBER Working Papers 17530, National Bureau of Economic Research, Inc.
    11. Aizenman, Joshua & Pinto, Brian & Sushko, Vladyslav, 2011. "Financial sector ups and downs and the real sector : big hindrance, little help," Policy Research Working Paper Series 5860, The World Bank.
    12. Raul V. Fabella & Fidelina N. Carlos & Sarah Lynne S. Daway & Geoffrey M. Ducanes, . "Giving the BSP an Extra Mop : A Response to Short-Term Capital Inflows," PCED Policy Notes, Philippine Center for Economic Development.
    13. de la Torre, Augusto & Didier, Tatiana & Pinat, Magali, 2014. "Can Latin America tap the globalization upside ?," Policy Research Working Paper Series 6837, The World Bank.

    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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