Financial Reforms and Capital Flows: Insights from General Equilibrium

Jaume Ventura and Martín, Alberto
Authors registered in the RePEc Author Service: Alberto Martin

No 9174, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: As a result of debt enforcement problems, many high-productivity firms in emerging economies are unable to pledge enough future profits to their creditors and this constrains the financing they can raise. Many have argued that, by relaxing these credit constraints, reforms that strengthen enforcement institutions would increase capital flows to emerging economies. This argument is based on a partial equilibrium intuition though, which does not take into account the origin of any additional resources that flow to high-productivity firms after the reforms. We show that some of these resources do not come from abroad, but instead from domestic low-productivity firms that are driven out of business as a result of the reforms. Indeed, the resources released by these low-productivity firms could exceed those absorbed by high-productivity ones so that capital flows to emerging economies might actually decrease following successful reforms. This result provides a new perspective on some recent patterns of capital flows in industrial and emerging economies.

Keywords: Capital flows; Economic growth; Financial globalization; Financial reforms; Productivity (search for similar items in EconPapers)
JEL-codes: F34 F36 G15 O19 O43 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ifn and nep-opm
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://cepr.org/publications/DP9174 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Chapter: Financial Reforms and Capital Flows: Insights from General Equilibrium (2015)
Working Paper: Financial Reforms and Capital Flows: Insights from General Equilibrium (2015)
Working Paper: Financial Reforms and Capital Flows: Insights from General Equilibrium (2012)
Working Paper: Financial reforms and capital flows: Insights from general equilibrium (2012)
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:cpr:ceprdp:9174

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9174

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().