Equity and bond flows to Asia and Latin America : the role of global and country factors

The authors investigate what has motivated the large portfolio flows to several developing countries in recent years. Using monthly data on U.S. capital flows to nine Latin American and nine Asian countries (instead of monthly reserves data), they analyze the behavior of bond and equity flows to those countries. Using panel data, they find that global factors - such as a drop in U.S. interest rates and the slowdown in U.S. industrial production - are important in explaining capital inflows. But country developments are at least as important in determining those flows, especially for Asia. They also find that equity flows are more sensitive than bond flows to global factors, but that bond flows are generally more sensitive to a country's credit rating and to the secondary market price of debt.Economic Theory&Research,Banks&Banking Reform,Financial Intermediation,Environmental Economics&Policies,Macroeconomic Management

Capital flows to Central and Eastern Europe and the Former Soviet Union

The capital flows to Central and Eastern Europe and the Former Soviet Union (CEE/FSU) represent a relatively small, albeit growing share of capital flows to developing countries. Taking all flows together, the total net flows to these 25 countries (Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russia, Slovakia, Slovenia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan) were about $44 billion in 1996 or about 1/8 of aggregate net flows to all developing countries. These countries accounted, however, for about 20 and 22 percent respectively of all developing countries Gross Domestic Product (GDP) and exports in 1996. As a fraction of their GDP, total inflows were consequently smaller than for many other developing countries, and averaged about 5.4 percent over the 1990-96 periods. In more recent years, there has been a more rapid inflow of private capital, as reform efforts have consolidated and economic prospects improved and, for some countries, as European Union (EU) integration became a possibility for the near future. For some countries, short-term capital has recently become an important source of external financing. Since most countries have been late comers to the phenomenon of large private capital inflows, they have not experienced much of the overheating phenomena which have affected other developing countries in the past (Latin America) and recently (East Asia). The paper is organized as follows. Section IIbriefly describes the facts on capital flows to these countries. Section III discusses important links and relationships between macroeconomic variables and the capital flows, including some of the basic motivations, and causes for capital flows. Section IV describes and analyzes the policy framework and policy responses in those countries that received the bulk of capital flows. Econometric tests are presented in section V, while section VI discusses the issues which may be arising with capital flows in these countries in the future and provides some conclusions.Capital Markets and Capital Flows,Banks&Banking Reform,International Terrorism&Counterterrorism,Fiscal&Monetary Policy,Economic Theory&Research,Capital Flows,Banks&Banking Reform,Macroeconomic Management,Economic Theory&Research,Settlement of Investment Disputes

Resolving systemic financial crisis : policies and institutions

The authors analyze the role of institutions in resolving systemic banking crises for a broad sample of countries. Banking crises are fiscally costly, especially when policies like substantial liquidity support, explicit government guarantees on financial institutions’ liabilities, and forbearance from prudential regulations are used. Higher fiscal outlays do not, however, accelerate the recovery from a crisis. Better institutions—less corruption, improved law and order, legal system, and bureaucracy—do. The authors find these results to be relatively robust to estimation techniques, including controlling for the effects of a poor institutional environment on the likelihood of financial crisis and the size of fiscal costs. Their results suggest that countries should use strict policies to resolve a crisis and use the crisis as an opportunity to implement medium-term structural reforms, which will also help avoid future systemic crises.Payment Systems&Infrastructure,Labor Policies,Fiscal&Monetary Policy,Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Crisis Management&Restructuring,Governance Indicators,National Governance,Banks&Banking Reform,Economic Conditions and Volatility

Who controls East Asian corporations ?

The authors identify the ultimate ownership structure for 2,980 corporations in nine East Asian countries. They find that: A) More than half of those firms are controlled be a single shareholder. B) Smaller firms and older firms are more likely to be family-controlled. C) Patterns of controlling ownership stakes differ across countries. The concentration of control generally diminishes with higher economic and institutional development. D) In many countries control is enhanced though pyramid structures and deviations from one-share-one-vote rules. As a result, voting rights exceed cash-flow rights. E) Management is rarely separated from ownership control, and management in two thirds of the firms that are not widely held is related to management of the controlling shareholder. F) In some countries, wealth is very concentrated and links between government andbusiness are extensive, so the legal system has probably been influenced by the prevailing ownership structure.Small and Medium Size Enterprises,Microfinance,Small Scale Enterprise,International Terrorism&Counterterrorism,Economic Theory&Research,Microfinance,Private Participation in Infrastructure,Small Scale Enterprise,Rural Land Policies for Poverty Reduction,Economic Theory&Research

Diversification and efficiency of investment by East Asian corporations

The East Asian financial crisis has been attributed in part to the corporate diversification associated with the misallocation of capital investment toward less profitable and more risky business segments. Much anecdotal evidence to support this view has surfaced since the crisis but there was little discussion of it before the crisis. Quite the contrary: The rapid expansion of East Asian firms by entering new business segments was viewed as contributing to the East Asian miracle. The authors examine the efficiency of investment by diversified corporations in nine East Asian countries, using unique panel data from more than 10,000 corporations for the pre-crisis period, 1991-96. They: 1) Document the degree of diversification in the corporate sector in Hong Kong, Indonesia, Japan, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand, countries that have achieved enviable rates of economic growth over the past three decades. 2) Distinguished between vertical and complementary diversification and study the differences across nine countries. 3) Investigate whether diversification in East Asian has hurt economic efficiency. Their study tests the learning-by-doing and misallocation-of-capital hypotheses related to the types and degrees of diversification in East Asian countries. Firms in Indonesia, Korea, Taiwan, and Thailand appear to have suffered significant negative effects of vertical integration on short-term performance; the same countries gained significant short-term benefits from complementary expansion. The results suggests that the misallocation-of-capital hypothesis is appropriate for Korea and Malaysia; the learning-by-doing hypothesis for Indonesia, Taiwan, and Thailand. Firms in more developed countries succeed in vertically integrating and improve both short-term profitability and market valuation. Firms in more developed countries are ultimately more likely to benefit from such diversification (learn faster, to improve theirperformance). And diversification by firms in less developed countries is subject to more misallocation of capital.Microfinance,Fiscal&Monetary Policy,Economic Theory&Research,Small and Medium Size Enterprises,Small Scale Enterprise,Economic Theory&Research,Microfinance,Private Participation in Infrastructure,Small Scale Enterprise,Achieving Shared Growth