Private capital flows, capital controls, and default risk

Mark Wright

No 2004-34, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: What has been the effect of the shift in emerging market capital flows toward private sector borrowers? Are emerging market capital flows more efficient? If not, can controls on capital flows improve welfare? This paper shows that the answers depend on the form of default risk. When private loans are enforceable, but there is the risk that the government will default on behalf of all residents, private lending is inefficient and capital controls are potentially Pareto-improving. However, when private agents may individually default, capital flow subsidies are potentially Pareto-improving.

Keywords: Capital market; Risk (search for similar items in EconPapers)
Date: 2004
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Related works:
Journal Article: Private capital flows, capital controls, and default risk (2006)
Journal Article: Private capital flows, capital controls, and default risk (2004)
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