Essays on Finance in Low-Income and Emerging Market Economies

Abstract

This dissertation is composed of three essays on finance in low-income and emerging market economies. The essays are unified by a central concern with how external finance shapes economic outcomes, examined through sovereign, cross-country, and firm-level settings. The first develops a general equilibrium model of sovereign default with heterogeneous creditors. Creditor composition affects restructuring dynamics and, through them, equilibrium default probabilities and bond prices. The model provides a consistent account of the observed shift in creditor shares, the rise in default duration and the persistence of modest default frequencies. The second uses loan-level cash-flow data from the World Bank’s private-sector investing arm, the International Finance Corporation, to provide a comprehensive assessment of realized returns to private debt investment in emerging and developing economies. It shows that this portfolio performs at near parity relative to public-market equivalents, though that headline result masks substantial underlying heterogeneity. The third revisits the determinants of foreign-currency borrowing by non-financial firms in emerging markets. In a setting where the domestic supply-side channel emphasized in recent work is absent, it provides detailed loan-level evidence that carry-trade incentives are an important driver of such borrowing and documents a credit contraction following adverse shocks to foreign-currency credit supply.