Institutional quality and capital inflows: Theory and evidence

Challe, Édouard; López, José Ignacio Atienza; Mengus, Eric

doi:10.1016/j.jimonfin.2019.05.005

Cited by 30 publications

(22 citation statements)

References 32 publications

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“…Elements of institutional quality, such as government effectiveness, regulatory quality, rule of law and control of corruption, are covered by the Worldwide Governance Indicators published by the World Bank (Chart 3). 14 While some euro area countries are ranked among the top global performers for institutional quality, a few euro area countries have deteriorated from already low levels relative to the global average since 1998 (see Fernandez-Villaverde et al (2013) and Challe et al (2018) for empirical and theoretical explanations of the decline in institutional quality in some euro area countries).…”

Section: Chart 1 Oecd -Product Market Regulation (Pmr) Indicatorsmentioning

confidence: 99%

Розвиток Інфраструктури Як Структурна Реформа В Україні: Інвестиційні Аспекти, Міжнародний Досвід Та Аудит

Bobukh¹,

Herasimova²

2024

ЕУ

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Section: Chart 1 Oecd -Product Market Regulation (Pmr) Indicatorsmentioning

confidence: 99%

Розвиток Інфраструктури Як Структурна Реформа В Україні: Інвестиційні Аспекти, Міжнародний Досвід Та Аудит

Bobukh¹,

Herasimova²

2024

ЕУ

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“…Those features can be classified as the foundations of institutional quality of a county. Institutions are a key determinant of economic development (see Challe et al, 2019). More recently, it has been shown that better institutional quality tend to enhance the country's willingness to pay its debts and thus reduce the likelihood of default (see Chen and Chen, 2018).…”

Section: The Impact Of Ipr and Fdi On Cross-country Capital Stockmentioning

confidence: 99%

“…Different authors used different proxies for the quality of institutions. For instance, Chen and Chen (2018) used the WGI of Kaufmann et al (2010) by taking the average of the six indicators listed above, whereas Challe et al (2019) only used the three of them (government effectiveness, control of corruption and rule of law). However, the components used in the construction of the governance quality are highly correlated with each other.…”

Section: Fig 1 Scatter Plots For Explanatory Variablesmentioning

confidence: 99%

“…In light of these findings, it could be argued that not just the financial flows or the intellectual capital itself but also features such as countries' legal protection system, regulatory quality, institutional mechanisms are important factors in explaining the gap between developed and developing countries in capital accumulation. These features as key institutions of a county are broadly defined as the set of rules and constraints that shape economic behaviour and incentives, acting as a key determinant of economic development (see Challe et al, 2019). More recently it has been shown that countries with better institutional quality tend to enhance the country's willingness to pay its debts, and thus reduce the likelihood of default (see Chen and Chen, 2018).…”

Section: Introductionmentioning

confidence: 99%

“…On the other hand, the impact of capital inflows on local economic institutions has recently been investigated by Challe et al, (2019) who interestingly found that capital inflows are followed by a decline in the quality of domestic economic institutions due to government's inability to stop financing inefficient projects by entrepreneurs as a result of ''soft budget constraint". With particular attention to the four Euro area countries (Spain, Portugal, Italy and Greece), high amount of capital inflows to those countries in the 1990s resulted in poorer institutional quality that led to Sovereign Debt Crisis in 2010 (see Challe et al, 2019). Therefore, it could be argued that not just the financial flows but how those flows are utilised within an economy can have implications for generating high value-added output.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality

Nemlioglu

Mallick

2020

Journal of International Money and Finance

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This paper investigates whether multilateral lending is more effective in accumulating capital in countries with a higher level of innovation. Specifically, we examine the role of the World Bank or IMF financing on capital stock using data from 175 countries over the period 1970-2017, while considering different types of long-term external flows namely FDI and debt. We find that FDI as a long-term inflow influences domestic capital stock positively, but non-G7 countries, even with a higher level of innovation, are unable to benefit from greater FDI flows in boosting their capital stock, which we explain considering institutional quality differences across countries. With regard to foreign debt flows, the multilateral lending only benefits a borrowing country if it has greater level of intellectual capital or if those funds are used in financing innovative activities. Unlike short-term IMF loans, as World Bank lending tends to be directed more towards long-term development goals, they help boost productive capital. Exploiting a policy intervention with TRIPs agreement, the paper further uncovers that countries with better institutional quality and greater innovation benefit from multilateral lending in generating higher level of capital stock following TRIPs implementation.

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Does greater financial openness promote external competitiveness in emerging markets? The role of institutional quality

et al. 2022

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Studies have shown that external capital account liberalisation can boost capital inflows and augment economic development. Nevertheless, in the case of developing and emerging economies (DEE), adverse currency fluctuations could hamper external competitiveness due to relative price differences creating currency overvaluation, which might not be mitigated via financial openness alone. Therefore, this paper uses annual panel data for 35 DEEs over 40 years to explore whether financial openness of countries can help preserve their external price competitiveness, in the presence of greater trade openness and better institutional quality. Our findings suggest that financial openness alone does not aid export competitiveness, unless it is supported by greater trade openness. In addition, both cross country and regional analyses show that financial openness can benefit economies in maintaining their export competitiveness if they have stronger quality of institutions. Our results remain robust when we estimate the role of financial openness and institutional quality jointly on external competitiveness across regions, and during the pre-and post-crisis periods. We conclude that financial openness alone is not sufficient to improve external competitiveness of an emerging economy, but it does help in the presence of greater trade openness or better institutions, enabling reduction in trade costs and thereby making these countries more price-competitive. K E Y W O R D Scapital inflows, financial openness, quality of institutions, real effective exchange rates

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Institutional quality and capital inflows: Theory and evidence

Cited by 30 publications

References 32 publications

Розвиток Інфраструктури Як Структурна Реформа В Україні: Інвестиційні Аспекти, Міжнародний Досвід Та Аудит

Розвиток Інфраструктури Як Структурна Реформа В Україні: Інвестиційні Аспекти, Міжнародний Досвід Та Аудит

Does multilateral lending aid capital accumulation? Role of intellectual capital and institutional quality

Does greater financial openness promote external competitiveness in emerging markets? The role of institutional quality

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