NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Hui Tong, Shang-Jin Wei

NBER Working Paper No. 15207
Issued in August 2009
NBER Program(s):   CF   IFM

International capital flows, while potentially beneficial, are said to increase a country’s vulnerability to crisis – especially if they are skewed to non-FDI types. This paper studies whether the volume and composition of capital flows affect the degree of credit crunch faced by a country’s manufacturing firms during the 2007-09 crisis. Using data on 3823 firms in 24 emerging countries, we find that, on average, 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 per se has no significant effect on the severity of the credit crunch. However, the composition of capital flows matters a great deal: pre-crisis exposure to non-FDI capital inflows worsens the credit crunch, while exposure to FDI alleviates the liquidity constraint. Similar results also hold when we perform an event study surrounding the Lehman Brothers bankruptcy.

download in pdf format
   (198 K)

email paper

This paper is available as PDF (198 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w15207

Published: Hui Tong & Shang-Jin Wei, 2011. "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2023-2052. citation courtesy of

Users who downloaded this paper also downloaded these:
Claessens, Tong, and Wei w17360 From the Financial Crisis to the Real Economy: Using Firm-level Data to Identify Transmission Channels
Ju and Wei w13148 Domestic Institutions and the Bypass Effect of Financial Globalization
Kim, Sung, and Wei w13721 How Does Corporate Governance Risk at Home Affect Investment Choices Abroad?
Tong and Wei w14205 Real Effects of the Subprime Mortgage Crisis: Is it a Demand or a Finance Shock?
Ju and Wei w13984 When Is Quality of Financial System a Source of Comparative Advantage?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us