Credit Constraints and the North-South Transmission of Crises

Nguyen, Ha

关键词: ACCELERATOR;    ACCOUNTING;    ADVANCED COUNTRIES;    ADVANCED COUNTRY;    ADVANCED ECONOMIES;   

DOI  :  10.1596/1813-9450-5408
RP-ID  :  WPS5408

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Adverse shocks to rich countries oftenhave a large and persistent negative impact on investmentand output in developing countries. This paper examines atransmission mechanism that can account for this stylizedfact. The mechanism is based on the existence ofinternational financial frictions. Specifically, if a small,developing country has to collateralize its assets to borrowfunds to invest, falling asset prices caused by a negativeshock in an advanced economy worsen the developingcountry's collateral value and reduce its ability toborrow and reinvest. Hence, investment in the developingcountry declines, and international investors repatriatecapital to the advanced country. As less capital now can bepledged as collateral, the developing country's creditconstraint is further tightened, which leads to anotherround of decline in investment. This generates a downwardspiral that may cause large output losses to the developingcountry. The mechanism finds empirical support in the2008-2009 crisis data.