TY  - JOUR
AU  - Razin,Assaf
AU  - Sadka,Efraim
AU  - Yuen,Chi-Wa
TI  - Why International Equity Inflows to Emerging Markets are Inefficient and Small Relative to International Debt Flows
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8659
PY  - 2001
Y2  - December 2001
UR  - http://www.nber.org/papers/w8659
L1  - http://www.nber.org/papers/w8659.pdf
N1  - Author contact info:
Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu

Efraim Sadka
Tel Aviv University
Eitan Berglas School of Economics
P.O.B. 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
E-Mail: sadka@post.tau.ac.il

Chi-wa Yuen
University of Hong Kong
E-Mail: cwyuen@ust.hk
AB  - This paper considers the financing of investment in the presence of asymmetric information between the 'insiders' and the 'outsiders' of the firms in a small open economy. It establishes a well-defined capital structure for the economy as a whole with the following features: low-productivity firms rely on the equity market to finance investment at a relatively low level; medium-productivity firms do not invest at all; and high-productivity firms rely on the debt market to finance investment at a relatively high level. It is shown that the debt market is efficient, with respect to both its scope and the amount of investment that each firm makes. However, the equity market fails: its scope is too narrow and the investment each firm makes is too little. A corrective policy requires just one instrument which is rather unconventional: lump-sum subsidies to those firms that choose to equity-finance their investment (i.e., equity-market-contingent grants).
ER  -