Shadow banking and cross-border capital inflows: Does the development level of financial institutions matter?

Subroto Rapih ()
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Subroto Rapih: Yamaguchi University

International Review of Economics, 2021, vol. 68, issue 3, No 3, 355 pages

Abstract: Abstract This paper examined the individual and simultaneous effects of cross-border capital inflows and domestic financial institution development indicators (depth, access, and efficiency) on the level of shadow banking assets. Using a panel dataset of 23 countries over the period 2005–2017, all three domestic financial institution development indicators are tested while controlling for their interaction with two types of cross-border debt inflows (cross-border debt inflows to banks and other sectors). This study yields three main findings. First, individually, cross-border debt inflows to banks harm the level of shadow banking assets. Second, the development of domestic financial institutions forms the foundation of the shadow banking system. Third, the development level of domestic financial institutions determines, to a large extent, whether cross-border debt inflows will impact the level of shadow banking assets. This study highlights the importance of cross-border capital inflows and the development level of financial institutions to the level of shadow banking assets and how the interactions between these variables contribute to the level of shadow banking assets.

Keywords: Shadow banking; Cross-border capital flows; Financial institutions; Financial development (search for similar items in EconPapers)
JEL-codes: F32 F34 G2 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s12232-021-00371-3

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