Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries

September 24, 2021

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Format: Chicago

Sebastian Horn, and Futoshi Narita. Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Over the past two decades, many low-income developing countries have substantially increased openness towards external financing and have received large capital inflows. Using bank-level micro data, this paper finds that capital inflows have been associated with financial deepening through increases in bank loans, deposits, and wholesale funding. Domestic banks increase loans more than foreign banks. There are only modest signs of a build-up in financial vulnerabilities. Causality is examined through an instrumental variable approach and an augmented inverse-probability weighting estimator. These approaches indicate only limited evidence for global push effects, pointing towards the importance of domestic pull factors.

Subject: Balance of payments, Capital flows, Capital inflows, Economic and financial statistics, Financial institutions, Financial sector policy and analysis, Financial sector risk, Financial statistics, Loans

Keywords: Bank characteristic, Capital flows, Capital inflows, Commonwealth and Development Office, Financial sector risk, Financial statistics, Global, Loans, Low-income developing countries, Micro data, Research project, U.K.'s Foreign

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/237
Stock No:

WPIEA2021237
ISBN:

9781513597720
ISSN:

1018-5941

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