{
  "title": "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis",
  "publication": "IMF Working Papers, August 1, 2009",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/the-composition-matters-capital-inflows-and-liquidity-crunch-during-a-global-economic-crisis-23141",
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  "summary": "We study whether capital flows affect the degree of credit crunch faced by a country's manufacturing firms during the 2007-09 crisis.",
  "sections": [
    {
      "heading": "Research question and scope",
      "content": "- Research question: Do capital flows affect the degree of credit crunch faced by a country's manufacturing firms during the 2007-09 crisis?\n- Sample and period:\n  - 3823 firms\n  - 24 emerging countries\n  - 2007-09 crisis (also examines surrounding the Lehman Brothers bankruptcy)\n- Authors: Hui Tong, Shang-Jin Wei\n- Date: August 1, 2009"
    },
    {
      "heading": "Key findings",
      "content": "- Firm-level exposure:\n  - The decline in stock prices was more severe for firms that are intrinsically more dependent on external finance for working capital.\n- Aggregate capital flows:\n  - The volume of capital flows has no significant effect on the severity of the credit crunch.\n- Composition of capital flows:\n  - Pre-crisis exposure to non-FDI capital inflows worsens the credit crunch.\n  - Exposure to FDI alleviates the liquidity constraint.\n- Robustness:\n  - Similar results also hold surrounding the Lehman Brothers bankruptcy."
    },
    {
      "heading": "Implications and interpretation",
      "content": "- Composition matters more than volume: policy analysis should focus on the types of inflows (FDI versus non-FDI) when assessing vulnerability to liquidity shocks.\n- Firms reliant on external finance for working capital are particularly vulnerable to equity-price declines during global crises, suggesting targeted liquidity support or financing alternatives could mitigate firm-level distress.\n- FDI appears to provide a stabilizing role in liquidity provision during crises, whereas non-FDI inflows can amplify funding stress."
    },
    {
      "heading": "Subject classification and keywords",
      "content": "- Subject: Asset prices, Capital flows, Capital inflows, External debt, Financial crises\n- Keywords: capital flow, credit crunch, crisis exposure, FDI openness, market index, portfolio inflow, WP\n\n---\n\n Content in this bundle\n\n- wp09164\n  - wp09164 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp09164 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/the-composition-matters-capital-inflows-and-liquidity-crunch-during-a-global-economic-crisis-23141"
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    "Authors: Hui Tong, Shang-Jin Wei",
    "Published: August 1, 2009",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451873115.001",
    "Research question: Do capital flows affect the degree of credit crunch faced by a country's manufacturing firms during the 2007-09 crisis?",
    "Sample and period:",
    "Authors: Hui Tong, Shang-Jin Wei",
    "Date: August 1, 2009",
    "Firm-level exposure:",
    "Aggregate capital flows:",
    "Composition of capital flows:",
    "Robustness:",
    "Composition matters more than volume: policy analysis should focus on the types of inflows (FDI versus non-FDI) when assessing vulnerability to liquidity shocks.",
    "Firms reliant on external finance for working capital are particularly vulnerable to equity-price declines during global crises, suggesting targeted liquidity support or financing alternatives could mitigate firm-level distress.",
    "FDI appears to provide a stabilizing role in liquidity provision during crises, whereas non-FDI inflows can amplify funding stress.",
    "Subject: Asset prices, Capital flows, Capital inflows, External debt, Financial crises",
    "Keywords: capital flow, credit crunch, crisis exposure, FDI openness, market index, portfolio inflow, WP",
    "**_wp09164**"
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