Working Paper: NBER ID: w16249
Authors: John D. Burger; Francis E. Warnock; Veronica Cacdac Warnock
Abstract: We assess the development of local currency bond markets in emerging market economies (EMEs). Supported by policies and laws that helped to improve macroeconomic stability and creditor rights, many local currency EME bond markets have grown substantially over the past decade and have also provided USD-based investors with attractive returns. U.S. investors have responded by increasing their holdings of EME local currency bonds from less than $2 billion in 2001 to over $27 billion by end-2008. While the increase in U.S. investment spanned many EMEs, empirical tests suggest that relatively more went to those with identifiable investor-friendly institutions and policies.
Keywords: Local Currency Bonds; Emerging Markets; US Investment; Macroeconomic Stability; Creditor Rights
JEL Codes: F3; G01; G11; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic stability (E60) | growth of local currency bond markets (G15) |
| creditor rights (G33) | growth of local currency bond markets (G15) |
| investor-friendly policies (G38) | growth of local currency bond markets (G15) |
| growth of local currency bond markets (G15) | reduced reliance on foreign currency debt (F34) |
| lower inflation volatility (E31) | increase in US investment in EMEs (F21) |
| stronger creditor rights (G33) | increase in US investment in EMEs (F21) |
| favorable returns of local currency bonds (G15) | increase in US investment in EMEs (F21) |
| returns characteristics of local currency bonds (G15) | influence investment decisions (G11) |