Composition of International Capital Flows: A Survey

Institute for Monetary and Financial Research, Hong Kong

doi:10.2139/ssrn.1868040

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Composition of International Capital Flows: A Survey

Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 14/2011

Published in "The Evidence and Impact of Financial Globalization", December 2012, Publisher: Academic Press, ISBN: 9780124058996

32 Pages Posted: 20 Jun 2011 Last revised: 22 Jul 2022

See all articles by Hong Kong Institute for Monetary and Financial Research

Hong Kong Institute for Monetary and Financial Research

(HKIMR)

There are 3 versions of this paper

Date Written: May 27, 2011

Abstract

This working paper was written by Koralai Kirabaeva (Bank of Canada) and Assaf Razin (Cornell University).

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 equities.

Suggested Citation: Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Composition of International Capital Flows: A Survey (May 27, 2011). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 14/2011, Published in "The Evidence and Impact of Financial Globalization", December 2012, Publisher: Academic Press, ISBN: 9780124058996, Available at SSRN: https://ssrn.com/abstract=1868040 or http://dx.doi.org/10.2139/ssrn.1868040