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Capital Inflows, Credit Growth, and Financial Systems
Author:
Ms. Deniz O Igan
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https://orcid.org/0000-0002-9501-1807
and
Zhibo Tan null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 193
Language:
English
Publication Date:
19 Aug 2015
DOI:
https://doi.org/10.5089/9781513581262.001
ISBN:
9781513581262
ISSN:
1018-5941
Pages:
31
Keywords:
WP; credit growth; GDP ratio; credit boom; FDI inflow; exchange rate; Financial development; Financial structure; Capital flows; Credit; market capitalization; Capital inflows; Credit booms; Consumer credit; Financial sector development; Global
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund