Institutions and the External Capital Structure of Countries

Paolo Mauro and Andre Faria ()

No 2004/236, IMF Working Papers from International Monetary Fund

Abstract: A widespread view holds that countries that finance themselves through foreign direct investment (FDI) and portfolio equity, rather than bonds and loans, are less prone to crises. But what determines countries' external capital structures? In a cross section of emerging markets and developing countries, we find that equity-like liabilities (FDI and, especially, portfolio equity) as a share of countries' total external liabilities (or as a share of GDP) are positively and significantly associated with indicators of educational attainment, natural resource abundance, and especially, institutional quality. These relationships are robust to attempts to control for possible endogeneity, suggesting that better institutional quality may help improve countries' capital structures. The results might also provide an explanation for the observed correlation between institutional quality and the frequency of crises.

Keywords: WP; portfolio equity; portfolio; equity; GDP; Foreign direct investment; external debt; external liabilities; portfolio debt; equity finance; total equity; FDI share; FDI flow; equity to FDI; Stocks; Natural resources; Bank credit (search for similar items in EconPapers)
Pages: 31
Date: 2004-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=17865 (application/pdf)

Related works:
Journal Article: Institutions and the external capital structure of countries (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2004/236

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().