International Economics and Economic Policy

, Volume 15, Issue 2, pp 305–329 | Cite as

External balance sheets as countercyclical crisis buffers

  • Joseph P. Joyce
Original Paper


The external balance sheets of many emerging market countries are distinguished by their holdings of assets primarily in the form of foreign debt and foreign exchange reserves, while their liabilities are predominantly equity, either foreign direct investment or portfolio equity. We investigate the claim that this composition served as a buffer for the emerging markets during the global financial crisis of 2008–09. We use data from a sample of 67 emerging market and advanced economies, and several indicators of the crisis are utilized: GDP growth rates in 2008–09, the occurrence of bank crises and the use of IMF credit. Our results show that those countries that issued FDI liabilities had higher growth rates, fewer bank crises and were less likely to borrow from the IMF. Countries with debt liabilities, on the other hand, had more bank crises and were more likely to use IMF credit. We conclude that the “long debt, short equity” (hold debt assets, issue equity liabilities) strategy of emerging markets did mitigate the effects of the global financial crisis.


External assets and liabilities Financial crises 

JEL classification

F3 F4 


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.Department of EconomicsWellesley CollegeWellesleyUSA

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