Financial Crises, Debt Finance, and Emerging Economies
By Arnold Kling
Evidence from past systemic banking crises in advanced economies (the US in the 1980s and Japan in the 1990s) shows that the decline in capital flows to emerging economies tends to be sizeable. Since then, banking-sector globalisation has continued, and the risks of large-scale deleveraging associated with common lender effects have risen. Given their large share of external financing through banks, a number of Emerging European economies might be severely affected by a drought of private capital inflows.
Off hand, I would say that certain types of economic transactions tend to draw debt finance rather than equity finance. Housing in the U.S. is one example. Capital flows to emerging economies are another. These sectors are more subject to boom-bust cycles. I suspect that there is a lot more analysis to be done on this issue.