Date of Award

December 2020

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Rebecca Neumann

Committee Members

Kundan Kishor, Hamid Mohtadi, Jangsu Yoon

Keywords

Debt, Financial, Integration, Private, Public, Volitilty

Abstract

This dissertation consists of two essays on surges of private and public debt flows and how these debt flows through financial integration affect output and consumption volatility (risk sharing) in emerging markets. Chapter 1 focuses on a common characteristic of many of the recent emerging market financial crises – a preceding surge in the debt inflows not only in the public but also in the private sector. In this chapter, I examine the drivers of the occurrence and magnitude of foreign debt surges to 28 emerging market economies (EMEs) over 1990-2016. Using the threshold method of defining a surge on net external debt flows, I differentiate surges in private debt flows from surges in public debt flows to examine which surge flow is more sensitive to global (Push) factors or domestic (Pull) factors. The results suggest that global factors are the primary drivers for both types of debt flow surges, with global risk in particular associated with increases in public debt surges but decreases in private debt surges. In determining the magnitude of these surges, the size of public debt surges is more sensitive to the global factors than the domestic factors. One benefit of financial integration according to economic theory is that it provides better opportunity whereby shocks to a country’s output or consumption can be diversified away through risk sharing. Evidence from recent empirical studies on international risk sharing shows that external debt liabilities are associated with higher economic volatility among emerging market economies due to the procyclical nature of debt flowing into these countries. However, other studies argue that the behavior of external debt liabilities can be countercyclical or procyclical depending on whether the debtor or creditor is a public or private entity. The second chapter of my dissertation focuses on the type of debtor (public and private) and the type of creditor (public and private) of external debt. Using a dynamic panel model, I examine how external debt liabilities from these debtors and creditors affect output and consumption growth volatility among 26 emerging economies from 1997-2016. The results suggest that i) external debt with private by a private borrower tends to have insignificant effect on economic volatility ii) Public debt from private lenders tends to increase output volatility significantly but not consumption volatility and iii) Public debt from public lenders or by public borrowers reduces both consumption and output volatility.

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