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Capital Flow Types, External Financing Needs, And Industrial Growth: 99 Countries, 1991-2007

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Executive Summary

The authors examine the differential impact of portfolio debt, portfolio equity, and FDI inflows on 37 manufacturing industries, 99 countries, 1991-2007, extending Rajan-Zingales (1998). They utilize external finance dependence measures in a series of cross-sectional regressions of manufacturing industries' growth rates covering 17 years. Net portfolio debt inflows are negatively associated with growth during the mid 1990s. The magnitudes of the negative effect of surges in portfolio debt inflows on growth are substantial in the late 1990s for a number of countries. The effect of debt inflows on growth in the 2000s is rather muted. Surges in portfolio equity inflows also exhibit a negative association with aggregate growth in the manufacturing sector.

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