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

HKIMR Working Paper No.17/2010

39 Pages Posted: 30 Jun 2010

See all articles by Hui Tong

Hui Tong

International Monetary Fund (IMF)

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

Multiple version iconThere are 3 versions of this paper

Date Written: June 29, 2010

Abstract

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.

Keywords: Financial Globalization, Financial Crisis, Spillover, Liquidity Constraint

JEL Classification: F3, G2, G3

Suggested Citation

Tong, Hui and Wei, Shang-Jin, The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis (June 29, 2010). HKIMR Working Paper No.17/2010. Available at SSRN: https://ssrn.com/abstract=1632061 or http://dx.doi.org/10.2139/ssrn.1632061

Hui Tong

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Shang-Jin Wei (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Tsinghua University - School of Economics & Management

Beijing, 100084
China

Register to save articles to
your library

Register

Paper statistics

Downloads
66
Abstract Views
764
rank
129,151
PlumX Metrics