The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis

Hui Tong and Shang-Jin Wei

No 2009/164, IMF Working Papers from International Monetary Fund

Abstract: We study whether capital flows affect the degree of credit crunch faced by a country's manufacturing firms during the 2007-09 crisis. Examining 3823 firms in 24 emerging countries, we find that the decline in stock prices was more severe for firms that are intrinsically more dependent on external finance for working capital. The volume of capital flows has no significant effect on the severity of the credit crunch. However, the composition of capital flows matters: pre-crisis exposure to non-FDI capital inflows worsens the credit crunch, while exposure to FDI alleviates the liquidity constraint. Similar results also hold surrounding the Lehman Brothers bankruptcy

Keywords: WP; capital flow; credit crunch; portfolio inflow; crisis exposure; FDI openness; market index (search for similar items in EconPapers)
Pages: 37
Date: 2009-08-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=23141 (application/pdf)

Related works:
Journal Article: The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis (2011)
Working Paper: The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis (2010)
Working Paper: The Composition Matters: Capital Inflows and Liquidity Crunch during a Global Economic Crisis (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:2009/164

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 ().