International Public Capital Flows

We analyze the international public capital flows by exploring the sovereign debt rating, a proxy for the safety of safe assets, on a crosssection sample of 132 advanced and developing economies. A higher sovereign debt rating is associated with less net public capital inflows, which are attributed to the decrease of grants inflows, net official debts inflows and IMF credit flows. Moreover, a higher productivity growth rate is associated with more foreign reserves for low sovereign debt rating but with less foreign reserves for high sovereign debt rating. Therefore, the net public capital inflows, especially the foreign reserves, builds up a buffer stock for the economy with low sovereign debt rating to insure against future uncertainty. The result is robust for instrument variable (IV) regression.