Institutions and the External Capital Structure of Countries

By André L. Faria, Paolo Mauro. Social Science Research Network, 2004

218 citations recorded by the source corpus.

A widespread view holds that countries that finance themselves through foreign direct investment and portfolio equity, rather than bonds and loans, are less prone to crises. But what determines countries' external capital structures? In a cross-section of advanced economies, emerging markets, and developing countries, we find that equity-like liabilities as a share of countries' total external liabilities are positively and significantly associated with indicators of educational attainment, openness, natural resource abundance and, especially, institutional quality. These relationships are robust to attempts to control for possible endogeneity, suggesting that better institutional quality may help improve countries' external capital structures.

Subfields: Finance, Information Systems, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/dd17917ead1b7fa45214ac8b828bcbc3007b3b63

Citations in the corpus

• Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In? (2016, unknown): “g Faria and Mauro (2009) who calculate a simple average of the governance indicators. The principal component is denoted WGIPC, and, as M&U, we construct a dummy variable that has the value 1 when a given country scores higher than the 50th percentile on WGIPC (in every year). The dummy variable is ”
• Tax Capacity and Growth: Is There a Tipping Point? (2016, unknown): “Faria and Mauro (2009) find that the external capital structure of countries—that is, the relative share of foreign direct investment, portfolio equity, and external debt in a country’s external financing—depends greatly on institutional quality.”
• International Capital Flows and Development: Financial Openness Matters (2010, unknown): “  In  particular,  the  quality  of  property  rights  affects  economic  growth  and  financial  development  (Acemoglu  and  Johnson,  2005),  and  capital  flows  (Alfaro  et  al.,  2008;  Faria  and  Mauro,  2009).”
• The US Dollar Shortage in Global Banking and the International Policy Response (2009, unknown): “Lane and Shambaugh (2009b) and Faria and Mauro (2009) build on this by investigating the determinants of countries’ long and short currency positions.”
• Financial Globalization: A Reappraisal (2009, unknown): “Faria and Mauro (2005) find that better institutional quality helps tilt a country’s capital structure towards FDI and portfolio equity flows which, as noted earlier, tend to bring more of the collateral benefits of financial integration.”
• Economic Policies and FDI Inflows to Emerging Market Economies (2011, unknown): “Faria and Mauro (2004) find that institutions affect the stock of FDI using 55 developing and emerging market economies.”