The External Financing of Emerging Markets--Evidence from Two Waves of Financial Globalization

Abstract

What determines the yields at which international investors are willing to lend to emerging market countries, and the amounts of such lending? We analyze the motivation underlying investors' choices in allocating their holdings across countries, through regressions for both prices (bond yields) and quantities (bond market capitalization or stocks of external liabilities) estimated during two waves of financial globalization (1870--1913 and today). The results suggest that, throughout the past one and a half centuries, a combination of human capital (including informal human capital) and institutional quality has been a key determinant of emerging market countries' ability to attract international investors. Copyright 2011, Oxford University Press.