Sovereign and private claims in the hands of foreign banks – are they substitutes? The case of CEE countries

Michał Brzozowski and Joanna Siwinska-Gorzelak

Post-Communist Economies, 2020, vol. 32, issue 4, 547-560

Abstract: The aim of this paper is to verify the impact of sovereign indebtedness on banking capital inflows in Central and Eastern European (CEE) countries. Using bilateral data on cross-border banking capital flows to 17 emerging CEE countries from 15 advanced economies in the 2005–2016 period and the System GMM estimation method we found that foreign banks’ claims on the public sector reduced claims on the private sector, banks, and non-bank financial institutions. Therefore, the main conclusion stemming from our research is that the effect of public debt on the private sector’s access to foreign credit is not limited to the impact of the overall level of sovereign debt; the access to foreign credit for the private sector is also affected directly by the public sector’s activity on the market for foreign credit, as measured by the claims on the public sector held by foreign banks.

Date: 2020
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DOI: 10.1080/14631377.2019.1678095

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