Inquiries into the behavior of emerging market firms

This dissertation addresses two aspects of firm behavior in emerging markets. Chapters 1 and 3 consider the decision of firms to borrow in domestic or foreign currency and the implications of this decision on fixed capital and inventory investment. Chapter 2 explores the effects of institutions, via transaction costs, on the variety of intermediate goods used by firms in different economies, and the effects of this choice on productivity levels. Much has been written recently about the problems for emerging markets that might result from a mismatch between foreign currency denominated liabilities and assets (or income flows) denominated in local currency. In particular, several models, developed in the aftermath of financial crises of the late 1990's, suggest that the expansion in the "peso" value of "dollar" liabilities resulting from a devaluation either aggravated or triggered many of the recent financial crises. However, little evidence has been presented either on the effects of foreign currency debt on investment or the variables that affect firm level debt choice in the first place. Two of the papers in this dissertation (Chapters 1 and 3) attempt to fill this gap using a new database with accounting information (including the currency composition of liabilities) for close to 400 non-financial firms in five Latin American countries. In Chapter 1 (coauthored with Hoyt Bleakley) we estimate, at the firm level, the reduced-form effect on investment of holding foreign currency denominated debt during an exchange rate realignment. We consistently find that this effect is positive, contrary to the predicted sign of the net-worth effect.

Department dc:contributor.department

Massachusetts Institute of Technology. Department of Economics

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2002

Author dc:creator

• Cowan, Kevin

Advisor dc:contributor.advisor

• Daron Acemoglu and Ricardo Caballero.

• Economics.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/17552

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/17552