International Equity and Debt Flows: Composition, Crisis, and Controls

71 Pages Posted: 12 May 2020 Last revised: 15 Feb 2021

See all articles by Chang Ma

Chang Ma

Fudan University - Fanhai International School of Finance (FISF)

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

Date Written: May 2020

Abstract

Standard models of capital flows to emerging market economies focus on debt flows and a pecuniary externality. However, by offering better risk sharing, international equity flows can render such externality unimportant, yet many economies fail to attract equity investment in a large quantity. We propose a theory of endogenous composition of capital flows that highlights two asymmetries. In our model, poor institutional quality leads to an inefficiently low share of equity financing as well as an inefficiently high volume of total inflows. Somewhat surprisingly, a social planner would often impose taxes on both equity and debt inflows. Our story differs in important ways from an alternative narrative focusing on collateral constraint.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Ma, Chang and Wei, Shang-Jin, International Equity and Debt Flows: Composition, Crisis, and Controls (May 2020). NBER Working Paper No. w27129, Available at SSRN: https://ssrn.com/abstract=3597861

Chang Ma (Contact Author)

Fudan University - Fanhai International School of Finance (FISF) ( email )

China

Shang-Jin Wei

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
105
PlumX Metrics