Foreign investment dynamics: The impact of benchmark-driven versus unconstrained investors on local credit conditions

Oscar Botero-Ramírez, Andrés Murcia and Mauricio Villamizar-Villegas

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We examine the impact of foreign investor heterogeneity on local lending, focusing on Colombia from 2014 to 2023. Distinguishing between benchmark-driven and unconstrained investors, we highlight their differing responses to global and idiosyncratic shocks. Using bond-level data and the corporate credit registry, we link banks’ exposure to foreign flows with firm-level lending decisions. By decomposing Colombia’s weight in the J.P. Morgan GBI-EM index into valuation and exogenous components, we identify how investor behavior shapes bank balance sheets. Our main findings show that banks with greater exposure to unconstrained investors significantly expand lending during capital inflows, whereas those linked to benchmark-driven investors exhibit a more muted response. These results emphasize the role of investor composition in financial stability and provide key insights for policymakers in emerging markets. **** RESUMEN: Examinamos el impacto de los diferentes tipos de inversionistas extranjeros en el crédito local, centándonos en Colombia entre 2014 y 2023. Diferenciamos entre inversionistas guiados por índices de referencia e inversionistas no restringidos, destacando sus respuestas divergentes ante choques globales e idiosincrásicos. Utilizando datos a nivel de bonos y el registro de crédito comercial, relacionamos la exposición de los bancos a flujos extranjeros con las decisiones de préstamo a nivel de empresa. Al descomponer el peso de Colombia en el índice J.P. Morgan GBI-EM en componentes de valoración y exógenos, identificamos cómo el comportamiento de los inversionistas influye en los balances bancarios. Nuestros principales hallazgos muestran que los bancos con mayor exposición a inversionistas no restringidos expanden significativamente el crédito durante las entradas de capital, mientras que aquellos vinculados a inversionistas guiados por índices presentan una respuesta más moderada.

Keywords: Capital flows; foreign investment; investor classification; J.P. Morgan GBI-EM index; emerging markets; Flujos de capital; inversión extranjera; clasificación de inversionistas; índice J.P. Morgan GBI-EM; mercados emergentes (search for similar items in EconPapers)
JEL-codes: F3 F4 G01 G11 G12 G15 (search for similar items in EconPapers)
Pages: 46
Date: 2025-04
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https://doi.org/10.32468/be.1309

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1309

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