@techreport{NBERw8187,
 title = "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises",
 author = "Shang-Jin Wei and Yi Wu",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "8187",
 year = "2001",
 month = "March",
 URL = "http://www.nber.org/papers/w8187",
 abstract = {Crony capitalism and self-fulfilling expectations by international creditors are often suggested as two rival explanations for currency crisis.  This paper examines a possible linkage between the two that has not been explored much in the literature: corruption may affect a country's composition of capital inflows in a way that makes it more likely to experience a currency crisis that is triggered/aided by a sudden reversal of international capital flows.  We find robust evidence that poor public governance is associated with a higher loan-to-FDI ratio. Such a composition of capital flows has been identified as being associated with a higher incidence of a currency crisis.  We also find some weaker evidence that poor public governance is associated with a country's inability to borrow internationally in its own currency.  The latter is also associated with a higher incidence of a currency crisis.  To sum up, even though crony capitalism does not forecast the timing of a crisis, it can nevertheless increase its likelihood.  This paper illustrates a particular channel through which this can happen.},
}