The impact of credit market liberalization in emerging countries is intensely debated. In the last twenty years or so, several emerging economies such as Argentina, Brazil, Mexico, Thailand, and most Eastern European countries have opened their credit markets to financial institutions from developed economies. Policymakers have often motivated liberalization arguing that the entry of financial institutions from developed economies deepens the financial sector. Sophisticated, multinational banks from advanced economies possess more efficient technologies for financing and monitoring businesses than local, unsophisticated financial institutions of emerging economies (see, e.g., Dages, Goldberg, and Kinney, 2000, for a discussion of the “financial deepening” argument). Therefore, the entry of foreign financial institutions after liberalization would ease the financing of investments, especially hard-to-finance ventures that would otherwise be left idle by local institutions. In the years following the liberalization episodes, however, a gloomier view has gained ground. Several scholars and policymakers have expressed concerns that the liberalization of the credit market tends to have different effects across segments of firms and sectors of activity. In particular, the financial deepening effect could especially benefit internationally active, export-oriented businesses in the tradables sector (that is, the sector with close ties to foreign institutions) but induce a reallocation of resources away from domestic-oriented, non-tradable industries (Giannetti and Ongena, 2009; Hawkins and Mihaljek, 2001; Lacoste, 2005; Mihaljek, 2006). The crises that have hit several emerging economies a few years after liberalization have further spurred such concerns. In fact, distinctive features of these crises were a drop in output and prices primarily concentrated in non-tradable goods industries, such as real estate, and a major reallocation of credit from the non-tradables to the tradables sector (Tornell, Westerman, and Martinez, 2003).
These two conflicting views of financial liberalization naturally elicit fundamental questions: can credit market liberalization have heterogeneous effects across sectors, particularly between tradable and non-tradable industries? If so, what does this imply for the impact of liberalization on credit market conditions and on the aggregate economy (output and asset prices)? Can we learn from this insights into the experience of liberalized emerging economies and, from a policy perspective, into the strategies to follow when opening credit markets to foreign institutions? The objective of this paper is to take a step towards addressing these questions, possibly helping reconcile the above conflicting views. Our starting point is standard. We consider an emerging economy with two sectors: a sector (“manufacturing”) that uses intensively an internationally tradable asset (“materials”) and a sector (“real estate”) that uses intensively a non-tradable asset (“land”). A contractual incompleteness in the credit market limits the appropriability of project returns, depressing the volume of investment projects in both sectors.
Migraine is a common clinical problem characterized by episodic attacks of head pain and associated symptoms such as nausea, sensitivity to light, sound, or head movement. It is generally thought of as a headache problem, but it has become apparent in recent years that many patients suffer symptoms from migraine who do not have severe headaches as a dominant symptom. These patients may have a primary complaint of dizziness, of ear pain, of ear or head fullness, "sinus" pressure, and even fluctuating hearing loss. Fortunately, treatment regimens long established for the treatment of "classic" migraine headaches are generally effective against these "atypical" symptoms of migraine.
In recent years, venture capital (VC) investments across national borders have started to trend upwards. Foreign or cross-border investment in venture capital markets has increased from 10% of all venture capital investments in 1991 to 22.7% in 2008 (based on number of venture capital investments). An important driver of this increase is the significant upward trend in international venture capital investments in emerging nations over this time period. The number of venture capital investments by international investors as a fraction of total venture capital investments in emerging nations increased from 8.7% in 1991 to 56% in 2008.
