International Lending Channel, Bank Heterogeneity and Capital Inflows (Mis)Allocation

Lucas A. Mariani () and Silvia Marchesi ()
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Lucas A. Mariani: Economic Research Southern Africa
Silvia Marchesi: Università degli Studi di Milano Bicocca

No 29, ERSA Working Paper Series from Economic Research Southern Africa

Abstract: This paper explores the role of banks’ heterogeneity in international lending and its impacts on capital inflows allocation across firms by exploiting the inclusion of South Africa into the Citi Group’s World Government Bond Index (WGBI). Using bank-level data, we provide evidence that banks holding sovereign bonds before the inclusion increase credit supply to non-financial firms after the shock. Moreover, less capitalized banks drive these effects. Using firm-level data in South Africa, we then show that credit is allocated to less financially constrained and less productive firms. Consistent with zombie-firms behavior, we find no evidence of a significant improvement in real outcomes after the increase of credit supply to those firms. Our paper adds to the literature by analyzing the interplay between banks’ heterogeneity, capital inflows shocks and capital misallocation.

Keywords: capital inflows; Sovereign Debt; International Lending Channel; Misallocation (search for similar items in EconPapers)
JEL-codes: F21 F36 G21 (search for similar items in EconPapers)
Date: 2024-08
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Published in ERSA Working Paper Series, August 2024

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