Composition of Capital Flows: A Survey

33 Pages Posted: 25 Oct 2010 Last revised: 17 Nov 2010

See all articles by Koralai Kirabaeva

Koralai Kirabaeva

International Monetary Fund (IMF)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: October 2010

Abstract

We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks, and discuss the following implications for composition of capital flows: 1. home court information advantage; 2. panic-based capital-flow reversals; 3. information-liquidity trade-off in the presence of source and host country liquidity shocks; 4. moral hazard in international debt contracts; and 5. risk sharing role of domestic bonds in the presence of home bias in goods and equity.

Suggested Citation

Kirabaeva, Koralai and Razin, Assaf, Composition of Capital Flows: A Survey (October 2010). NBER Working Paper No. w16492. Available at SSRN: https://ssrn.com/abstract=1696424

Koralai Kirabaeva (Contact Author)

International Monetary Fund (IMF) ( email )

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

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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