Capital Inflows, Credit Growth, and Financial Systems

Deniz Igan and Zhibo Tan

No 2015/193, IMF Working Papers from International Monetary Fund

Abstract: Exploiting a granular panel dataset that breaks down capital inflows into FDI, portfolio and other categories, and distinguishes between credit to the household sector and to the corporate sector, we investigate the association between capital inflows and credit growth. We find that non-FDI capital inflows boost credit growth and increase the likelihood of credit booms in both household and corporate sectors. For household credit growth, the composition of capital inflows appears to be more important than financial system characteristics. In contrast, for corporate credit growth, both the composition and the financial system matter. Regardless of sectors and financial systems, net other inflows are always linked to rapid credit growth. Firm-level data corroborate these findings and hint at a causal link: net other inflows are related to more rapid credit growth for firms that rely more heavily on external financing. Further explorations on how capital flows translate into more credit indicate that both demand and supply side factors play a role.

Keywords: WP; credit growth; GDP ratio; credit boom; FDI inflow; exchange rate; Financial development; Financial structure; Capital flows; Credit; market capitalization; Capital inflows; Credit booms; Consumer credit; Financial sector development; Global (search for similar items in EconPapers)
Pages: 31
Date: 2015-08-19
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Citations: View citations in EconPapers (20)

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Journal Article: Capital Inflows, Credit Growth, and Financial Systems (2017)
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