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

Author/Editor:

Hui Tong ; Shang-Jin Wei

Publication Date:

August 1, 2009

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We study whether capital flows affect the degree of credit crunch faced by a country's manufacturing firms during the 2007-09 crisis. Examining 3823 firms in 24 emerging countries, we find that the decline in stock prices was more severe for firms that are intrinsically more dependent on external finance for working capital. The volume of capital flows has no significant effect on the severity of the credit crunch. However, the composition of capital flows matters: pre-crisis exposure to non-FDI capital inflows worsens the credit crunch, while exposure to FDI alleviates the liquidity constraint. Similar results also hold surrounding the Lehman Brothers bankruptcy

Series:

Working Paper No. 09/164

Subject:

English

Publication Date:

August 1, 2009

ISBN/ISSN:

9781451873115/1018-5941

Stock No:

WPIEA2009164

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

37

Please address any questions about this title to publications@imf.org