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FACULTY OF ECONOMICS
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
1. Conceptual Bases for the Study of International Capital Flows Definition of the International Capital Flow and International Financial Assets Flow
net capital flow is the sum of net capital flows from:
long-run debt instruments (credits and bonds) ownership instruments (foreign direct investment and portfolio ownership investment) irrevocable financial aid
net financial funds flow=net capital flow-net interest and profit payments
International Finance Mojmir Mrak
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
Definition of the International Capital Flow and the International Financial Assets Flow
Gross inflow on the basis of loans Principal payment = = Loans repayment Net capital flow on the basis of loans Interest payment = Net financial funds flow on the basis of loans + FDI, portfolio ownership inv., grants = Net capital flow Interest and profit payment = Net financial funds flow
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FACULTY OF ECONOMICS
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debt instruments:
commercial bank loans bonds and portfolio debt investment and supplier credits financial grants
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FACULTY OF ECONOMICS
2. International Capital Flows Until the End of 1980s Period from 1870-1914
prevailingly in the form of bonds, less in the form of foreign direct investment financing of economic infrastructure projects the longest period of high capital mobility
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
1920s Period
financing the public finance expenditures of capital importing countries bonds end with the emergence of big economic crisis, complete renunciation of inflow of new financial funds into less developed countries
common characteristics:
period of growth was followed by a period of quick fall international capital flows consisted of private flows exclusively sudden drop in international capital flows occurred because of sudden political and/or economic events
International Finance Mojmir Mrak Page 10
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
1970s Period
1950s and 1960s (less developed countries):
very limited international capital flows assets from public sources more than two thirds of all capital inflows no access to debt sources of private capital
Table 15.3.: Net capital flow into less developed countries in the period from 1970 1990 (mia $)
Public capital flows - Official development assistance - Other ODF Private capital flows - Equity - Direct investment. - Portfolio investment - Debt - Commercial bank loans - Bonds - Other 1970 5,6 4,8 0,7 5,8 2,3 2,3 0,0 3,5 2,3 0,0 0,0 11,3 1975 18,8 14,4 4,4 25,4 7,4 7,4 0,0 18,0 14,2 0,2 3,6 44,2 1980 35,1 24,6 10,5 53,3 5,1 5,1 0,0 48,2 32,2 2,6 13,4 88,4 1985 36,7 25,5 11,1 32,7 11,4 11,3 0,1 21,3 8,3 5,4 7,6 69,4 1990 57,9 46,1 11,8 44,0 28,7 25,0 3,7 15,3 1,7 3,0 10,6 101,9
Sum Source: Managing Capital Flows, 1996, p. 5 (cites World Debt Tables 1996).
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
1970s Period
reasons for the increase in private net capital inflows into developing countries:
increased liquidity of commercial banks and their inappropriate judgment of country risk in less developed countries increased balance-of-payments deficits in oil importing countries negative real interest rates in international financial markets
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
1970s Period
period of financing with bank loans ended abruptly in 1982 with the emergence of the debt crisis net capital inflows returned to the level from the beginning of the decade in the second half of the 1980s:
increased financing from public sources continuing growth of private equity capital flows (foreign direct investment)
key difference:
bank exposure in creditor countries relative to debtors in less developed countries
International Finance Mojmir Mrak
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UNIVERSITY OF LJUBLJANA
FACULTY OF ECONOMICS
3. International Capital Flows in the 1990s Basic Characteristics of International Capital Flows
Table 15.4.: Net capital flow into less developed countries in the period from 1991 2000 (mia $)*
1991 Public capital flows - Official development assistance - Grants - Concessional loans - Other ODF Private capital flows - Equity - Direct investment - Portfolio investment - Debt - Commercial banks - Bonds - Other Sum * Estimate fo r 2000.
60,9 49,5 35,1 14,4 11,4 62,1 43,3 35,7 7,6 18,8 5,0 10,9 2,8 123,0
1992
56,5 46,4 30,5 15,9 10,1 99,3 61,2 47,1 14,1 38,1 16,2 11,1 10,8 155,8
1993
53,6 41,7 28,3 13,4 11,9 166,8 117,6 66,6 51,0 49,2 3,4 36,6 9,2 220,4
1994
48,0 48,1 32,7 15,4 -0,1 175,7 125,2 90,0 35,2 50,5 8,7 38,2 3,6 223,7
1995
55,1 46,2 32,7 13,5 8,9 206,1 143,1 107,0 36,1 63,0 30,5 30,8 1,7 261,2
1996
31,9 39,7 28,1 11,6 -7,8 279,3 180,7 131,5 49,2 98,7 33,7 62,5 2,4 311,2
1997
42,8 35,6 26,1 9,5 7,2 299,8 202,8 172,6 30,2 97,0 45,2 49,0 2,7 342,6
1998
54,6 38,4 27,3 11,1 16,2 280,3 192,4 176,8 15,6 87,9 50,0 40,9 -3,0 334,9
1999
45,3 40,3 28,9 11,4 5,0 219,2 219,9 185,4 34,5 -0,6 -24,6 25,4 -1,6 264,5
2000
38,6 41,6 29,6 11,7 -3,0 257,2 225,9 178,0 47,9 31,3 0,7 30,3 0,3 295,8
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change in the structure of clients who were borrowing from the banks:
mostly countries in the 1970s and 1980s project financing in the 1990s foreign direct investment: the most important and the most stable form of international capital flows
International Finance Mojmir Mrak
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external factors
structural and cyclical changes in international financial markets of capital exporting countries
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4. International Capital Flows and Financial Crises Variety of Consequences of International Capital Inflows for Capital Importing Countries
potential benefits of international capital flows:
enabling higher rates of investment and consequently faster economic growth positive effects of direct foreign investments and portfolio investments
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financial crisis general problematics of crises in less developed countries in the last two decades
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