stephanie carret & jinjie cui (eric) faculty of economic science university of warsaw
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Sources for Financing Domestic Capital Is Foreign Saving a Viable Option for Development Countries?. Stephanie Carret & Jinjie Cui (Eric) Faculty of Economic Science University of Warsaw 7th January, 2010. The Planning for today. 1. Review of paper: main ideas - PowerPoint PPT PresentationTRANSCRIPT
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 11
Sources for Financing Domestic Capital
Is Foreign Saving a Viable Option for Development Countries?
Sources for Financing Domestic Capital
Is Foreign Saving a Viable Option for Development Countries?
Stephanie Carret&
Jinjie Cui (Eric)
Faculty of Economic ScienceUniversity of Warsaw
7th January, 2010
Stephanie Carret&
Jinjie Cui (Eric)
Faculty of Economic ScienceUniversity of Warsaw
7th January, 2010
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 22
The Planning for todayThe Planning for today
1. Review of paper: main ideas2. Analysis of illustrative graphs3. Other views on the subject4. What questions can we raise
1. Review of paper: main ideas2. Analysis of illustrative graphs3. Other views on the subject4. What questions can we raise
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 33
The point of this paperThe point of this paper
• Capital account liberalization– Controversial policy in the 90’s
• Early 90’s– Waves of market-oriented liberalization– Greater financial liberalization– Optimism about growth prospects– Growing financial integration
• Expected capital stock increased with available foreign savings– This papers tries to test this assumption
This paper shows economic growth depends on all factors explaining magnitude & quality of investments in all types of K
Political economy factors & political risk diversification– Important to understand the link growth-SFR
• Capital account liberalization– Controversial policy in the 90’s
• Early 90’s– Waves of market-oriented liberalization– Greater financial liberalization– Optimism about growth prospects– Growing financial integration
• Expected capital stock increased with available foreign savings– This papers tries to test this assumption
This paper shows economic growth depends on all factors explaining magnitude & quality of investments in all types of K
Political economy factors & political risk diversification– Important to understand the link growth-SFR
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 44
Data used & MethodologyData used & Methodology• Data
– World Development Indicators database– 47 developing & 22 OECD countries– Between 1981 and 2001
• Methodology– National income accounts– SFR: what is the autarky stock of tangible K
supported by actual domestic past savings relative to actual stock of K
– Panel comparison accross countries & time
• Data– World Development Indicators database– 47 developing & 22 OECD countries– Between 1981 and 2001
• Methodology– National income accounts– SFR: what is the autarky stock of tangible K
supported by actual domestic past savings relative to actual stock of K
– Panel comparison accross countries & time
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 55
Regional findingsRegional findings
• Latin America & Africa– Rely more on foreign savings to finance their finance
their tangible K – Weak trend of SFR greater dispersion– Relatively low growth rates
• Asia– SFR increased, especially post-1997 crisis– Asia has financed domestically its rapid increase in K– Precautionnary savings post-crisis: increased SFR– High growth rates
• OECD– Increase in standard deviation of SFR*
• Latin America & Africa– Rely more on foreign savings to finance their finance
their tangible K – Weak trend of SFR greater dispersion– Relatively low growth rates
• Asia– SFR increased, especially post-1997 crisis– Asia has financed domestically its rapid increase in K– Precautionnary savings post-crisis: increased SFR– High growth rates
• OECD– Increase in standard deviation of SFR*
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 66
Main ConclusionsMain Conclusions
• Self-financing ratio in developing countries– Evaluate impact of growing global financial integration on sources
of financing domestic capital stocks
• Results found– 90% of stock of capital is self financed & Stable through the 90’s*– No significant correlation found between
• Financial integration and self-financing ratios– During 90’s, countries with higher SFR grew faster– No « growth bonus » when increased financing share of foreign
saving– Better institutions associated with lower volatility of SFR
• Financial integration helped facilitating assets diversification…– … but failed to offer new sources of financing capital
• Self-financing ratio in developing countries– Evaluate impact of growing global financial integration on sources
of financing domestic capital stocks
• Results found– 90% of stock of capital is self financed & Stable through the 90’s*– No significant correlation found between
• Financial integration and self-financing ratios– During 90’s, countries with higher SFR grew faster– No « growth bonus » when increased financing share of foreign
saving– Better institutions associated with lower volatility of SFR
• Financial integration helped facilitating assets diversification…– … but failed to offer new sources of financing capital
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 77
Figure 1 Self-financing ratios, means and standard deviationsFigure 1 Self-financing ratios, means and standard deviations
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 88
Figure 2 Growth and self-financing ratio, cross-country analysis, 1990sFigure 2 Growth and self-financing ratio, cross-country analysis, 1990s
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Table 1 Explaining average per capita growth rates in the 90s (T-statistics are presented in italics)
Table 1 Explaining average per capita growth rates in the 90s (T-statistics are presented in italics)
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Table 2 Explaining standard deviation of self-financing rates in the 90sTable 2 Explaining standard deviation of self-financing rates in the 90s
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 1111
Figure 3 The association between deeper de-facto financial integration and changes in self-financing ratios
Figure 3 The association between deeper de-facto financial integration and changes in self-financing ratios
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 1212
Figure 4 Self-financing ratio, means across regionsFigure 4 Self-financing ratio, means across regions
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Figure 5 Annual GDP per capita growth, means across regionsFigure 5 Annual GDP per capita growth, means across regions
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Figure 6 Self-financing ratios and GDP per captia growth rates in selected countries that did not experience major financial crisis
Figure 6 Self-financing ratios and GDP per captia growth rates in selected countries that did not experience major financial crisis
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S.Carret & J.CuiS.Carret & J.Cui Development WorkshopDevelopment Workshop 1515
Figure 7 Self-financing ratios and GDP per capital growth rates in selected countries that experienced major financial crisis
Figure 7 Self-financing ratios and GDP per capital growth rates in selected countries that experienced major financial crisis
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3. Other views on the subjectthe case of foreign investment3. Other views on the subjectthe case of foreign investment
• « Foreign investment in developing contries: does it crowd in domestic investment? », by M.Agusin and R.Machado, in Oxford Development Studies, 2005
• To what extent MNE’s FDI in developing countries are crowding in and out domestic investment?
• Establish an investment theoratical model including FDI variable– 12 countries in 3 developing regions (Africa, Asia, S.America)– Testing between 1971-2000
• Conclusions– At best, domestic investment unchanged for 3 regions– S.America & Africa, crowding out movements (70’s & 90’s)– Need for more policies to make FDI more effective
• Develop the domestic component of total investment• Limit liberalization on FDI? Screening policies? Quality ladder?
– Question of FDI impact on development & total investment
• « Foreign investment in developing contries: does it crowd in domestic investment? », by M.Agusin and R.Machado, in Oxford Development Studies, 2005
• To what extent MNE’s FDI in developing countries are crowding in and out domestic investment?
• Establish an investment theoratical model including FDI variable– 12 countries in 3 developing regions (Africa, Asia, S.America)– Testing between 1971-2000
• Conclusions– At best, domestic investment unchanged for 3 regions– S.America & Africa, crowding out movements (70’s & 90’s)– Need for more policies to make FDI more effective
• Develop the domestic component of total investment• Limit liberalization on FDI? Screening policies? Quality ladder?
– Question of FDI impact on development & total investment
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4. What questions can we raise?4. What questions can we raise?
• When to liberalize? Is it needed to liberalize?
• Did the Washington Consensus did worse than better?– Case of Latin America– Case of East Asia
• What about the role of the state?• How to invest foreign savings in capital
financing?
• When to liberalize? Is it needed to liberalize?
• Did the Washington Consensus did worse than better?– Case of Latin America– Case of East Asia
• What about the role of the state?• How to invest foreign savings in capital
financing?
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Source:Source:
Paper: “Source for financing domestic capital – Is foreign saving
a viable option for developing countries”, by J.Aizenman,B.Pinto & E.Radziwill, in NBER working paper 10624, 2004.
Paper: “Source for financing domestic capital – Is foreign saving
a viable option for developing countries”, by J.Aizenman,B.Pinto & E.Radziwill, in NBER working paper 10624, 2004.
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Questions?Questions?
Thank you for your attention!Thank you for your attention!