Composition of Capital Flows: A Survey

Koralai Kirabaeva and Assaf Razin

No 16492, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We survey several mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). We focus on information frictions such as adverse selection and moral hazard, and exposure to liquidity shocks, and discuss the following implications for composition of capital flows: 1. home court information advantage; 2. panic-based capital-flow reversals; 3. information-liquidity trade-off in the presence of source and host country liquidity shocks; 4. moral hazard in international debt contracts; and 5. risk sharing role of domestic bonds in the presence of home bias in goods and equity.

JEL-codes: F3 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cta and nep-ifn
Note: IFM
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Citations: View citations in EconPapers (7)

Published as Koralai Kirabaeva and Assaf Razin “Composition of Capital Flows” Encyclopedia of Financial Globalization , Elsevier , October, 2012.

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