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Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries
Author:
Sebastian Horn
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and
Mr. Futoshi Narita
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 237
Language:
English
Publication Date:
24 Sep 2021
DOI:
https://doi.org/10.5089/9781513597720.001
ISBN:
9781513597720
ISSN:
1018-5941
Pages:
49
Keywords:
micro data; low-income developing countries; U.K.'s Foreign; Commonwealth and Development Office; research project; bank characteristic; Capital inflows; Capital flows; Loans; Financial statistics; Financial sector risk; 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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2021: Issue 237