Global Capital Flows and Financing Constraints
Firms often cite financing constraints as one of their primary obstacles to investment. Global capital flows, by bringing in scarce capital, may ease the financing constraints of host country firms. But if incoming foreign investors borrow heavily...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2002/02/1715999/global-capital-flows-financing-constraints http://hdl.handle.net/10986/15615 |
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okr-10986-156152021-04-23T14:03:19Z Global Capital Flows and Financing Constraints Harrison, Ann E. Love, Inessa McMillan, Margaret S. ASSETS ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK LOANS CAPITAL ACCUMULATION CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CASH EQUIVALENTS CLOSED ECONOMIES COMMERCIAL BANK LOANS COMPETITIVENESS CREDIT RATIONING CROWDING OUT DEBT DEPOSITS DEVELOPMENT ECONOMICS DIRECT INVESTMENT DISCOUNTED VALUE DIVIDENDS DOMESTIC CAPITAL MARKETS DOMESTIC INVESTMENT EMPIRICAL EVIDENCE EQUITY CAPITAL EXCHANGE RATE EXPORTS EXTERNAL FINANCING FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FIXED CAPITAL FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN OWNERSHIP GDP GLOBAL CAPITAL GNP GNP PER CAPITA GROSS DOMESTIC PRODUCT GROWTH RATE IMPORTS INCOME INCOME LEVELS INTEREST RATE INTEREST RATES LESS DEVELOPED COUNTRIES LIQUID ASSETS LIQUIDITY M2 M3 MARGINAL COST MARGINAL PRODUCT MARKETABLE SECURITIES MERGERS NPV OPTIMIZATION PERFECT COMPETITION POLICY MAKERS PORTFOLIO PRESENT VALUE PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION RATIONAL EXPECTATIONS REAL GDP REAL GNP SAVINGS SCARCE CAPITAL SECURITIES SURCHARGES VALUATION VARIABLE COSTS WORKING CAPITAL GLOBAL CAPITAL CAPITAL FLOWS FOREIGN DIRECT INVESTMENTS TIME-SERIES ANALYSIS CROSS COUNTRY ANALYSIS CAPITAL INFLOWS CAPITAL ACCOUNT MULTINATIONAL ENTERPRISES PORTFOLIO INVESTMENT CASH FLOW GLOBALIZATION Firms often cite financing constraints as one of their primary obstacles to investment. Global capital flows, by bringing in scarce capital, may ease the financing constraints of host country firms. But if incoming foreign investors borrow heavily from domestic banks, foreign direct investment may exacerbate financing constraints by crowding host country firms out of domestic capital markets. Combining a unique cross-country firm-level panel with time-series data on restrictions on international transactions and capital flows, Harrison, Love, and McMillan find that different measures of global flows are associated with a reduction in firm-level financing constraints. First, the authors show that one type of capital inflow-foreign direct investment-is associated with a reduction in financing constraints. Second, they test whether restrictions on international transactions affects the financing constraints of firms. The results suggest that only one type of restriction-those on capital account transactions-negatively affects firms' financing constraints. The authors also show that multinational firms are not financially constrained and do not appear to be sensitive to the level of foreign direct investment. This implies that foreign direct investment eases financing constraints for non-multinational firms. Finally, the authors show that (1) foreign direct investment only eases financing constraints in the non-G7 countries, and (2) other kinds of flows, such as portfolio investment, have no impact on financing constraints. 2013-09-04T19:54:18Z 2013-09-04T19:54:18Z 2002-02 http://documents.worldbank.org/curated/en/2002/02/1715999/global-capital-flows-financing-constraints http://hdl.handle.net/10986/15615 English en_US Policy Research Working Paper;No. 2782 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ASSETS ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK LOANS CAPITAL ACCUMULATION CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CASH EQUIVALENTS CLOSED ECONOMIES COMMERCIAL BANK LOANS COMPETITIVENESS CREDIT RATIONING CROWDING OUT DEBT DEPOSITS DEVELOPMENT ECONOMICS DIRECT INVESTMENT DISCOUNTED VALUE DIVIDENDS DOMESTIC CAPITAL MARKETS DOMESTIC INVESTMENT EMPIRICAL EVIDENCE EQUITY CAPITAL EXCHANGE RATE EXPORTS EXTERNAL FINANCING FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FIXED CAPITAL FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN OWNERSHIP GDP GLOBAL CAPITAL GNP GNP PER CAPITA GROSS DOMESTIC PRODUCT GROWTH RATE IMPORTS INCOME INCOME LEVELS INTEREST RATE INTEREST RATES LESS DEVELOPED COUNTRIES LIQUID ASSETS LIQUIDITY M2 M3 MARGINAL COST MARGINAL PRODUCT MARKETABLE SECURITIES MERGERS NPV OPTIMIZATION PERFECT COMPETITION POLICY MAKERS PORTFOLIO PRESENT VALUE PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION RATIONAL EXPECTATIONS REAL GDP REAL GNP SAVINGS SCARCE CAPITAL SECURITIES SURCHARGES VALUATION VARIABLE COSTS WORKING CAPITAL GLOBAL CAPITAL CAPITAL FLOWS FOREIGN DIRECT INVESTMENTS TIME-SERIES ANALYSIS CROSS COUNTRY ANALYSIS CAPITAL INFLOWS CAPITAL ACCOUNT MULTINATIONAL ENTERPRISES PORTFOLIO INVESTMENT CASH FLOW GLOBALIZATION |
| spellingShingle |
ASSETS ASYMMETRIC INFORMATION BALANCE OF PAYMENTS BANK LOANS CAPITAL ACCUMULATION CAPITAL ALLOCATION CAPITAL FLOWS CAPITAL MARKETS CAPITALIZATION CASH EQUIVALENTS CLOSED ECONOMIES COMMERCIAL BANK LOANS COMPETITIVENESS CREDIT RATIONING CROWDING OUT DEBT DEPOSITS DEVELOPMENT ECONOMICS DIRECT INVESTMENT DISCOUNTED VALUE DIVIDENDS DOMESTIC CAPITAL MARKETS DOMESTIC INVESTMENT EMPIRICAL EVIDENCE EQUITY CAPITAL EXCHANGE RATE EXPORTS EXTERNAL FINANCING FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FIXED CAPITAL FOREIGN ASSETS FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN FIRMS FOREIGN INVESTMENT FOREIGN INVESTORS FOREIGN OWNERSHIP GDP GLOBAL CAPITAL GNP GNP PER CAPITA GROSS DOMESTIC PRODUCT GROWTH RATE IMPORTS INCOME INCOME LEVELS INTEREST RATE INTEREST RATES LESS DEVELOPED COUNTRIES LIQUID ASSETS LIQUIDITY M2 M3 MARGINAL COST MARGINAL PRODUCT MARKETABLE SECURITIES MERGERS NPV OPTIMIZATION PERFECT COMPETITION POLICY MAKERS PORTFOLIO PRESENT VALUE PRODUCTION FUNCTION PRODUCTIVITY PROFIT MAXIMIZATION RATIONAL EXPECTATIONS REAL GDP REAL GNP SAVINGS SCARCE CAPITAL SECURITIES SURCHARGES VALUATION VARIABLE COSTS WORKING CAPITAL GLOBAL CAPITAL CAPITAL FLOWS FOREIGN DIRECT INVESTMENTS TIME-SERIES ANALYSIS CROSS COUNTRY ANALYSIS CAPITAL INFLOWS CAPITAL ACCOUNT MULTINATIONAL ENTERPRISES PORTFOLIO INVESTMENT CASH FLOW GLOBALIZATION Harrison, Ann E. Love, Inessa McMillan, Margaret S. Global Capital Flows and Financing Constraints |
| relation |
Policy Research Working Paper;No. 2782 |
| description |
Firms often cite financing constraints
as one of their primary obstacles to investment. Global
capital flows, by bringing in scarce capital, may ease the
financing constraints of host country firms. But if incoming
foreign investors borrow heavily from domestic banks,
foreign direct investment may exacerbate financing
constraints by crowding host country firms out of domestic
capital markets. Combining a unique cross-country firm-level
panel with time-series data on restrictions on international
transactions and capital flows, Harrison, Love, and McMillan
find that different measures of global flows are associated
with a reduction in firm-level financing constraints. First,
the authors show that one type of capital inflow-foreign
direct investment-is associated with a reduction in
financing constraints. Second, they test whether
restrictions on international transactions affects the
financing constraints of firms. The results suggest that
only one type of restriction-those on capital account
transactions-negatively affects firms' financing
constraints. The authors also show that multinational firms
are not financially constrained and do not appear to be
sensitive to the level of foreign direct investment. This
implies that foreign direct investment eases financing
constraints for non-multinational firms. Finally, the
authors show that (1) foreign direct investment only eases
financing constraints in the non-G7 countries, and (2) other
kinds of flows, such as portfolio investment, have no impact
on financing constraints. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Harrison, Ann E. Love, Inessa McMillan, Margaret S. |
| author_facet |
Harrison, Ann E. Love, Inessa McMillan, Margaret S. |
| author_sort |
Harrison, Ann E. |
| title |
Global Capital Flows and Financing Constraints |
| title_short |
Global Capital Flows and Financing Constraints |
| title_full |
Global Capital Flows and Financing Constraints |
| title_fullStr |
Global Capital Flows and Financing Constraints |
| title_full_unstemmed |
Global Capital Flows and Financing Constraints |
| title_sort |
global capital flows and financing constraints |
| publisher |
World Bank, Washington, DC |
| publishDate |
2013 |
| url |
http://documents.worldbank.org/curated/en/2002/02/1715999/global-capital-flows-financing-constraints http://hdl.handle.net/10986/15615 |
| _version_ |
1764429714186829824 |