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It appears that a common theme of the paper is that foreign investment is, to some degree, a matter of luck for the country receiving investment. Sometimes investment is preceded by structural reform that bolsters investors’ confidence, and other times it has more to do with the investors own situation and interest rates in their country of residence. One thing is for certain though, foreign investors pulling out their money seems to ensure that the economic downturn that they were worried about actually occurs. I really enjoyed seeing examples as far back as World War 1 and 2 as I feel like economic analyses focuses on the last 50 years more often than not. I also wonder if the Fed’s concern in 1928 about stock market speculation shifting resources into a less productive sector is not also true now. It seems as though the quantitative analysis is at odds with the qualitative, which is an interesting difference. The paper we are reading though seems to come to the conclusion that “it depends” when looking at how U.S. interest rates impact investment in other countries. I am a bit out of practice with a lot of the terms the paper uses and wish that it had been written in a way that a lay person might better understand. I found the idea that East Asian countries are better at choosing when to pull back from international markets and when to open up to be unsurprising and consistent with much of what we have learned so far. I did not understand the author’s justification of this though.

Ben Barbour

I thought this paper was a lot more confusing and in depth with financial markets than most others we have read. It used terms that I have not though about in a long time, as well as little explanation into a lot of what they talked about. An example of this is talking about how a rise in interest rates led to the “Tequila Crisis,” but I don’t know much about the Tequila Crisis. However, I do believe that the findings of the paper are as important as other findings we read about in class. One thing that I thought seemed interesting about the paper is the state of US markets has such an effect on foreign countries. The first conclusion of the paper was that global credit conditions have an impact on developing countries debt, which is heavily influenced by the US. I can understand how this makes sense, since a lot of countries view the dollar as sort of a global currency and will be heavily affected by our decisions, interest rates, and other aspects of our economy. I particularly thought this is interesting because areas with poor credit risk will drop out when US interest rates increase, which makes complete sense. I would be more inclined to invest and save when interest rates are high in the US market, where I know, I am going to get my money back, while being more averse to the volatile areas like Latin America. However, the opposite is also true, where if interest rates in countries like the US fall (which they have in recent years), then looking to emerging markets may result in a better outcome. I thought this paper could have done better in some areas of wording or making it easier to read for somebody who may not be well educated in banking, but it did have good findings that help explain the effects on other parts of the world when money centers have changes.


This paper was a little hard to follow and confusing for someone who does not have a lot of experience with markets and banking. I theme I did follow throughout the paper was that the United States has a big effect on other countries. The United States dollar is portrayed as a global currency as is the Euro, so any changes or decisions we make ultimately effects the whole globe. If the value of the dollar drops, so does the world market. They have a direct correlation. As the United States interest rates go up, it makes it a more appealing option to investors. As the interest rates go down, many investors turn to other options such as East Asia to invest their money.
This article also talks about the Brady Plan and Tequila Crisis. I am not familiar with either of these turns but I enjoyed reading the section about the Brady Plan. The Brady Plan got inflation to drop while also strengthening problems of nonperforming debt. This plan also reduced tariffs and quotas from imports/exports which allowed expansion in the trade sector which had a spiraling effect to more income being brought into Latin American countries. More money was brought back to the markets after this policy was implement in 1989. The United States is facing high inflation at the moment and is not expected to go back down until at least the summer time. This has caused many people to cut back on spending and expenses. Not saying the United States is in the same situation as Latin America and needs a plan like the Brady Plan, but we as a nation could use it as a model to figure out how to lower inflation rates to make Americans spend money again which would result in our economy running more fluidly.

Ella Hall

Throughout the beginning of this paper, I found myself questioning if the issue is not as binary as it was presented. I thought that it must be necessary for there to be some level of alignment between the conditions in the borrowing country and the external interest rates in order for foreign investment to take place at a large scale. This paper suggests, to my understanding which I admit might be limited, that the overwhelming explanation is that of interest rates and that the evidence that focuses on means of privatization, liberalization, and stabilization are missing some of the patterns that can be found if the data is broken up into floating- and fixed- rate and differences in region. The debate surrounding the explanation for foreign lending made me think about our previous discussion about the Washington Consensus. The Washington Consensus emphasized the importance of trade liberalization, the importance of a balanced budget, and other aspects that essentially put the responsibility on the borrowing country to have optimal conditions for further development. However, just as evidenced in this article, the real-world examples do not always follow this pattern. This is particularly obvious in the differences between Latin American and Asian countries which we have spoken about earlier and are used as examples in this paper. I think, similar to my own thinking while reading the paper, it is reasonable to expect liberalization of markets and other mechanisms to be an important part of the foreign lending puzzle, but empirically this does not seem to be the case.

Jack Denious

While I really have no background in fiscal policy or international fiscal policy for that matter, our discussion earlier in the term piqued my interest and this paper framed an issue that I had not thought of before. My thinking on the subject would have always been surrounded by the first school of thought - that domestic decisions to stabilize the economy, liberalize industries, weed out corruption, and curb inflation would have the larger impact on the inflow of international capital. I had not thought of interest rates within the capital exporting country’s impact before reading this piece. While I could not follow all of the paper exactly - it makes sense to me that there are yield hungry investors/lenders out there, and when yields fall domestically, it encourages them to look abroad for better yields on their investments. The next piece obviously becomes the capital importing country’s appetite for this foreign debt/investment. The push and pull between these factors really interests me and is something I hope we discuss further in class. I think the paper neglects the impact of lower interest rates domestically - for instance in the current economic climate how our current low interest rates are likely fueling rapid inflation.

Jacob Thompson

I found this paper to be a bit challenging, as there was some technical jargon that I don’t think I quite grasped and it referred to a few events and ideas that I’m not very familiar with. With that being said, I was very intrigued by the idea that East Asian countries seemed to excel at deciding when to invest in foreign markets and when to recede. While this definitely matches up with the concepts regarding East Asian countries and the Asian Tigers that we have previously discussed, I’m curious as to what their formula is and how they’ve become so adept at predicting the markets. A part of me would like to assume there’s a bit of blind luck involved, but I find that hard to believe considering the ways in which these countries have exceled in development in comparison to the rest of the world. This made me wonder whether or not this could tie back to their massive investment in human capital, as maybe they just have a more educated population that has devised extremely efficient ways of analyzing markets and interest rates, which in turn allows them to capitalize on knowing when to ease up and when to invest more. If this isn’t the case, I’m curious as to what their methods are, and would love to discuss how they’ve become so adept at this in class.


From what I gathered in Eichengreen and Mody’s paper, an increase in interest rates in developed countries leads to financial crises in developing countries if the developed-country interest rates drive the demand for developing-country bonds. This was best shown in the example of when US interest rates fell and ultimately led to a shift in the fiscal balance in Latin America from a deficit of 3% to a surplus of 1%. Because capital flows to emerging markets when interest rates are low in developed countries, you would think that a solution to help developing countries is to lower interest rates in a developed country. However, I guess this would not be feasible because of the negative implications this would have on the developed country’s economy. Though it makes sense, I wonder how accurate the findings of the paper are because it mentions this is only the case when controlling for the impact of US interest rates on the decision of borrowers to issue debt in developing countries, and because it mentions that econometric studies on disaggregated data have been unable to fully support this. All in all, the paper was difficult to really grasp, and I am not fully confident my interpretation of it is correct.

Claire Kallen

This paper was a bit hard for me to follow. I feel like it was a lot of technically challenging work that I am not very familiar with so I struggled to understand it at what felt like a high level. From what I could understand it seems like it was focusing on the interconnected relationships between countries and their treasury yields and the rates and their economic activity as a whole. One of the examples given was with higher U.S. rates which would make borrowing more expensive. What I understood from that with these higher rates it makes economic activity harder because later in the article it then says that borrowing is easier in East Asian markets and they are in less debt so it sets them up for better economic success.
To further support this, later in the article it says when the U.S.’s interest rates fell that it help aid in their recovery. I’m not quite sure if I understood that correctly but if it did it provides an interesting take on how best to set rates in order to sustain a healthy economy. Then I had the question of if an economy could ever really function with these high rates? With the Cline-Barnes and Kanin-van Kleist papers they suggest to spread interest rates. I’m a bit confused by that but if I understand correctly it is agreeing that rates can’t be very high in order for the economy to thrive and it is better to spread out these rates so that no one country has much higher rates than another?
One thing that I was curious about was if countries with high credit ratings are more inclined to come into the market, why would the rates be as critical as they are if the authors are able to make that general of a statement about the demand for the market. I would’ve thought that people who have a strong demand to borrow will borrow regardless of the specific rate.
Overall, I took away from paper that the lower interest rates will spark economic activity and also the idea that reforms are very helpful and not having enough of them can harm you like it did in the case of Latin America. There, the reforms not as large and ended up not being as beneficial (at least that is how I understood it). I really struggled with this paper and understanding a lot of the higher level technicals that came with it. I do not feel very confident with my commentary in this response being correct but I did enjoy being challenged to understand this new topic.

Claire Jenkins

Similar to what some of my other classmates have stated, I found this paper by Eichengreen and Mody a bit difficult to read. I don't have a lot of knowledge of or background in financial markets, especially emerging markets. I thought that the authors could have done a better job of explaining some of the concepts in greater depth and possibly writing in less technical terms. One thing that I was able to pull out of the paper and something that I found interesting was the overall broad concept that US markets can have a great impact on emerging markets. I appreciated how the authors pointed to experiences in the 1920s, 1970s, and 1990s. I found it interesting to read the different examples that the authors provided, even though I wasn't able to follow along with everything they were saying at times. It was interesting to see connections between what happened in the 1920s to what happened 50 or so years later. I found the Brady Plan and its impacts to be interesting. We saw capital flooding back to emerging markets as a result of structural reforms. This stimulus in lending was associated with bringing inflation under control, strengthening fiscal positions, increasing exports, reducing the deficit, and increasing privatization. However, the authors pointed out the influence of external factors as well-- that declining interest rates in major money centers played a role in the recovery of lending. This conclusion ultimately leads to the conclusion that interest rates in the major money centers and the Untied States are extremely important in influencing international lending. It was interesting to learn more about how industrial countries can have such an impact on emerging markets. The authors pointed out that when industrial countries have low interest rates, capital flows to emerging markets will increase. This paper made me realize just how dependent emerging markets are on industrial countries like the United States and other major money centers; they are much more interconnected than I realized before reading this paper.

Matt Condon

I found this paper to be much more difficult to understand than many other papers we have read this semester, as I am not terribly well-versed in the details of international finance. I was able to understand most aspects of the regression analysis used in this paper, but there were also portions that left me confused. However, the over-arching argument of this paper is an important one, and I think it ties back with many other themes we have seen throughout our study of the development literature. One of these themes is the necessity to evaluate the needs of each developing country independently of others, especially when they are in different regions. This paper discussed in depth the different responses of issuers of securities in East Asian and Latin American countries, and how differently they responded to the external stimuli of American fiscal policy. This paper presents an often overlooked aspect of development, which is the role of financial markets. It is made clear that the development of emerging economies, especially in terms of foreign investment, are dependent on the interest rates and financial conditions of fully developed industrial nations. This seems like another kind of poverty trap, as the supply of foreign investment is often out of the control of the developing nations. This begs the questions of whether the financial institutions of developed nations need to consider the needs of developing countries when determining monetary policy actions. While there is no clear solution, I think this reading emphasizes the importance of developing legitimate financing institutions in developing countries, if even just on the micro level, to try to give developing economies a certain degree of independence from the monetary policies of developed nations.

Brad Stephenson

One of the main points of the article relates to credit ratings and their importance in global financial markets. For example, when interest rates in lending countries increase, countries with the worst credit rating stop participating in global financial markets. This is a problem as the countries with the worst credit rating are the economies that need foreign investment the most. Lowering the interest rate, however, does not necessarily fix this issue due to differing behaviors of developing economies. Lowered rates encourage foreign investment but does not necessarily guarantee the reintroduction of borrowing countries in the global financial market. This creates a complicated situation that seems difficult to improve without major interventions by lending powers. This paper successfully represents both the lending and debtor parties by presenting the difficulties of both sides. Sadly, I may be completely off base here as this article is difficult to understand since I do not have much knowledge about global financial markets, bonds, or interest rates.

Mark Natiello

I thought this paper was very informative regarding international lending, yet much of the jargon was pretty high level and required me to re-read a lot of the sections. However, I thought their argument was logical and supported by substantive research. It was easy to understand that the volume and composition of international lending are affected by US interest rates. I understood that a rise in US treasury yields raises spreads when it affects the demand by investors for developing country bonds but reduces them when its effect is to increase supply. The article talks about the influx and reflux of foreign lending to developing countries based on the interest rate changes in the United States. This dependence on the US seems dangerous for developing countries because there are instances where the US government might need to raise rates and foreign lending will decrease drastically like what occurred in the first half of 1928. Historically, decreases in US lending have hurt Latin American countries for example, and have stunted their development progress. Will the world’s lending always be dependent on US treasury yields? Currently, the United States has taken on huge amounts of debt within the last year, will this contribute to decreasing lending? There are also rumors of the Fed hiking interest rates in the near future due to rising inflation. What countries will this have the largest impact on? I am also curious if the overall decentralization of banks and currency will take the dependence off of the US. As of now, currency value and lending are dictated by the United States and the changes in interest rates, so if money becomes decentralized, how will that positively or negatively impact lending in developing nations.

Chaz Cunningham

I found it really interesting to read a piece on global markets and the flow of interest rates. This paper is also definitely a bit different than the text we usually read for class and it makes it a bit more complex to follow, especially right off the bat. I like the pieces of historical economics that show when falling interest rates became a problem for lenders who were not getting good returns on the ir money. Particularly, I would like to discuss the capital inflows in regards to interest rates. in my microtheory class currently, we spent a lot of time going over foreign markets and capital relative to shocks that change the interest rate. We know that capital inflows changes directly with the change in interest rate, yet this affects the suppply and demand of foreign currency. As I was reading this paper, I saw an example of this relationship in the Asian crisis as it is written. In addition, I thought the piece about the Fed keeping rates low in the 1920's during financial hardships is relatable to what we have seen in the Federal Reserve over the past year and a half due to covid. The money supply has greatly increased and in turn, the interest rates have stayed very low in order to recover and stimulate spending. The one section I would like to have understood more clearly is the econometric regression model ran on the issuance of bonds in Latin America. I do see however that these findings represent key structural differences in Latin America compared to other regions. I understood why the high interest rates in the US decentivize developing country borrowers in their decision, but something I would like to discuss further in class is the relationship between the floating rate and fixed rate East Asian bonds.

Grace Owens

This paper by Eichengreen and Mody was very detailed and technical, with some of the language being confusing to me. Overall, this paper seemed to have a goal of trying to establish the contributing factors to the development of emerging markets, however at the same time seemed to bring up more uncertainty. It was interesting, as others also pointed out, that this paper touched on instances from many different decades in the past century. In the particular instance of the Brady Plan, which as a result encouraged “a shift of resources into the traded goods sector and with it a surge in exports,” it was said that it attracted capital back to emerging markets. However, the paper goes on to say that this is not necessarily true and that external factors such as declining interest rates in the major money centers played another role in triggering this. The ambiguity of these economic situations and their causes were difficult for me to understand, even with the immense amount of data collected in relation to them in this paper.

Kaylann Adler

I found this paper to be confusing, especially since I don’t really have a background in finance. However, from what I thought I understood, I thought it was interesting that areas with a poor credit risk will be more likely to drop out when U.S. interest rates increase, and that Latin American areas seemed to be more affected by this than their East Asian counterparts. This reminded me of when we talked about the Washington Consensus and how, contrary to the standard ideals for economic growth, many East Asian economies took a different approach to develop their economy. One of the things we mentioned was how developed Western countries tend to suggest the debt/GDP should be 1-2% for developing countries, but the U.S. runs around 4% of that same ratio. This paper shows that what Western countries suggest a developing country does and what actually happens to tend to diverge, and it almost seems hypocritical, in a way, to say that developing economies need to borrow money to build capital—but not too much money against their GDP—but that if something goes wrong in the U.S. economy—which will probably happen during some period of economic crisis when it’s important to try and grow the economy—those countries may not get to borrow because of factors that are seemingly out of their control.

Alexandra Lindsay

Although the wording and terms of this article and the data tables were challenging to follow, a major theme that I was able to follow is the large impact that countries have on one another, specifically when it comes to capital flows and interest rates. For example, changing international interest rates produced "half the variation in capital inflows to emerging markets" (6). Historically, the impact that the United States has on different countries is huge. For example, after World War I the US Federal Reserve kept interest rates low, leading Americans to invest in more lucrative opportunities abroad, specifically in Europe and Latin America. Vice versa, when US interest rates are high, Latin American and Asian borrowers tried to minimize their debt and the supply curve decreases. East Asia has been less dependent, however, when it comes to external finance. The power that the United States has when it comes to its influence of international finance shows the immense responsibility that it has on every country, whether that be direct or indirect.

Teddy Bentley

This paper was hard to understand and was filled with a lot of vocabulary that I did not un derstand. However, I was able to pick up on the conclusions that were made and they did make sense. I find that countries would likely have more investments when the interest rates are lowered but it was interesting to make the connection with interest rates in the US versus with the East Asian rising powers. This paper shows how important US policy is on interest rates and how that affects the rest of the world. The US financial policies are very important for stimulating foreign investment. This paper just seemed like the take away is just to show the influence of how to frame the economy in order to stimulate investment. As we know from this class, when there is investment in countries, and they are allocated to the correct resources, this well be very beneficial to the economic development of developing countries.

Valerie Sokolow

As several people have already mentioned, this paper was a little bit tougher to follow, but after rereading some sections a few times, I think I understand why what the authors found was so interesting. In class, we use a lot of models and we all understand that it’s what theory predicts, but there is evidence that certain trends will be followed in the real world. In this paper, the authors ran a different statistical analysis than what is commonly use to help find data to support different theories. I think it’s important to recognize any shortcomings with particular research/analytical methods and try to fully investigate a problem before drawing any conclusions. Ordinary least squares regression is arguably the most common regression analysis used for Economics-related data, but many of its assumptions typically don’t hold up in the real-world and this isn’t always addressed. I liked that this paper reinvestigated a topic but from a new lens with a different statistical analysis – maximum likelihood. Through this, the authors were able to draw different conclusions than before and I appreciated their use of multiple types of analyses to analyze their data.

Max Thomas

Like a lot of the previous posts, I found the language of this paper a bit confusing, so I’m not sure how much of the concepts I grasped. One thing that I believe I understood is the likely relationship between low interest rates in the United States and increased direct investments abroad. Intuitively, the direction of the relationship makes sense. As interest rates in the United States fall, so does the opportunity cost of holding money, incentivizing American investors to invest in more projects. Given the high opportunity for growth in developing countries, investments in these emerging markets are appealing.

Though this relationship appears to be contested in the paper, I wonder how current low interest rates have affected American investments abroad. Considering that interest rates are quite low right now, I would expect higher investments in developing economies. However, there are clearly outside events that may reduce the quantity of current foreign investments.

Kevin Thole

This paper was more technical than many others we read and used many terms from financing and lending markets. The main issue explored in the paper was whether emerging markets could institute concrete policies to attract foreign capital or if attracting for capital was up to external forces beyond their control. The paper found that interest rates in the United States and other countries.
This has several implications for developing countries. The major one is that developing countries are dependent on economic conditions in the United States for attracting capital. Since the COVID-19 pandemic began, and even before the pandemic, the Federal Reserve has kept interest rates relatively low which has incentivized foreign investment. Present fears about inflation caused the Fed to do a slight monetary contraction in the summer and they may do a larger one in the future. If this occurs, US investors may shift more of their money towards domestic investments rather than invest in emerging markets. This will seriously hurt these developing countries who were disproportionately hit hard economically by the pandemic.


As with many of my peers, I feel that there was a lot of this paper that I did not understand. What I did gather was that when interest rates in developing countries increase (incentivizing investment), that investments fall in developing countries even though the markets seem so different. I would imagine that this would be the product of large foreign direct investment but I am not sure. If my intuitions about this paper's arguments are correct, it seems to be a testament to just how interconnected global markets are. While nearly all of the most common justifications for the federal reserve changing interest rates are concerned with domestic affairs (US GDP growth, domestic investment rates, and US inflation), it seems that many of the economic effects of US interest rate fluctuations are spread across the world. This doesn't necessarily indicate that the fed should act differently, but it seems like an interesting aspect of an otherwise unexamined aspect of increasingly globalized financial markets.

Jacob McCabe

I had a similar challenge in reading this paper as many others - I do not have as much experience in global banking or the dynamics of that industry, but I was able to gain some important takeaways. One of the main points that I gathered was that the credit opportunities for developing nations are very much correlated with the rates in "money centers". I found this interesting, but also fairly intuitive as it makes sense that countries that are currently developing would be at the mercy of the holders of power. It also makes a lot of sense that low interest rates in the US would spark more investment abroad, as there is less incentive to save money when there are higher returns elsewhere (hello opportunity cost). When thinking about this, it really makes me consider the responsibility that these money centers may have in terms of promoting development on a global scale. The actions taken domestically have global implications, and sometimes that is something that policymakers do not consider enough.

Connor Verrett

I thought this paper was really interesting. I am very interested in finance, but I am not as familiar with fixed-income and especially not foreign fixed income markets. I was very surprised that emerging market spreads and US rates had no positive correlation. The US t-bond rate is a crucial piece in evaluating any investment as it represents the risk-free rate. Although this paper was very interesting, I am curious what policies could be implemented as a result of it. Would getting emerging countries to model their credit markets after East-Asian countries be helpful? With rates already so low in the US and Europe is there anything they can do to help developing countries at this point?

Gavron Campbell

As many others have also pointed out, I found myself re-reading several sentences and arguments because of the sentence structure and wording; however, I did enjoy the overall conclusion that a country’s affairs and well-being is not exclusive to just them. Instead, as the paper focused on, capital inflows and interest rates make a dramatic difference in emerging markets. I thought an interesting point was when the author said that “capital flooded to different emerging markets at more or less the same rate irrespective of the pace of domestic reform” during the 1990s. This then meant that the decrease in interest rates was an external factor to the increase in lending, which ultimately could be a reason why emerging markets may struggle to grow. Overall, it was an interesting, but difficult paper to read. I’m excited to learn more about it in class tomorrow.

Sally Ennis

With very little knowledge in the bond market and international fiscal policy, I found the article interesting as it opened my eyes up to something I do not understand very well. I feel like there was little focus on explaining what certain technical terms meant, especially ones that showed up throughout the research. For example, I would love if you could clarify the meaning behind spreads and how they can be seen in different markets. Are they just a metric for regression analysis, as in the traditional definition of a spread in statistics? However, based off of what I interpreted, the role of US interest rates plays a crucial part in international developing countries borrowing rates. In the paper they state, “In addition, there is a tendency for relatively poor credit risks to drop out of the market in periods of relatively high U.S. rates”. This concept makes sense as when there are higher interest rates, the countries that are struggling the most will have a limited borrowing amount as they do not have the means to take the risk for repaying the debt.

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