Capital Inflows, Credit Growth, and Financial Systems

August 19, 2015

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Format: Chicago

Deniz O Igan, and Zhibo Tan. Capital Inflows, Credit Growth, and Financial Systems, (USA: International Monetary Fund, 2015) accessed November 5, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Exploiting a granular panel dataset that breaks down capital inflows into FDI, portfolio and other categories, and distinguishes between credit to the household sector and to the corporate sector, we investigate the association between capital inflows and credit growth. We find that non-FDI capital inflows boost credit growth and increase the likelihood of credit booms in both household and corporate sectors. For household credit growth, the composition of capital inflows appears to be more important than financial system characteristics. In contrast, for corporate credit growth, both the composition and the financial system matter. Regardless of sectors and financial systems, net other inflows are always linked to rapid credit growth. Firm-level data corroborate these findings and hint at a causal link: net other inflows are related to more rapid credit growth for firms that rely more heavily on external financing. Further explorations on how capital flows translate into more credit indicate that both demand and supply side factors play a role.

Subject: Balance of payments, Capital inflows, Consumer credit, Credit, Credit booms, Financial markets, Financial sector development, Money

Keywords: Capital flows, Capital inflows, Consumer credit, Credit, Credit boom, Credit booms, Credit growth, Exchange rate, FDI inflow, Financial development, Financial sector development, Financial structure, GDP ratio, Global, Market capitalization, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/193
Stock No:

WPIEA2015193
ISBN:

9781513581262
ISSN:

1018-5941

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