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

Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries
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Volume/Issue: Volume 2021 Issue 237
Publication date: September 2021
ISBN: 9781513597720
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Topics covered in this book

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Exports and Imports , Finance , Economics- Macroeconomics , Money and Monetary Policy , Business and Economics - Statistics , Economics / General , 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

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.