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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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Bibliographic Details
Main Authors: Harrison, Ann E., Love, Inessa, McMillan, Margaret S.
Language:English
en_US
Published: World Bank, Washington, DC 2013
Subjects:
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
FOREIGN DIRECT INVESTMENTS
TIME-SERIES ANALYSIS
CROSS COUNTRY ANALYSIS
CAPITAL INFLOWS
CAPITAL ACCOUNT
MULTINATIONAL ENTERPRISES
PORTFOLIO INVESTMENT
CASH FLOW
GLOBALIZATION
Online Access:http://documents.worldbank.org/curated/en/2002/02/1715999/global-capital-flows-financing-constraints
http://hdl.handle.net/10986/15615
Description
Summary: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.

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