The Shifting Composition of External Liabilities
Andre Faria (),
Paolo Mauro () and
Gian Maria Milesi-Ferretti ()
Journal of the European Economic Association, 2007, vol. 5, issue 2-3, 480-490
What determines the composition of external liabilities, both across countries and over time? More specifically, which countries account for the massive increase in equity-like liabilities (foreign direct investment and portfolio equity), especially since the mid 1990s? The empirical analysis draws on the newly released ``External Wealth of Nations Mark II'' dataset. In the cross-section, we find that larger, more open economies with a better institutional quality score have a greater equity share in external liabilities, which is also positively related to natural resource production. Along the time-series dimension, we find that the shift towards equity financing is stronger among those countries that have undertaken a greater degree of domestic financial reform. (JEL: F21, F34, F36) (c) 2007 by the European Economic Association.
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