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Capital flow and banking credit in Indonesia

Author

Listed:
  • Mara, Mirza Yuniar Isnaeni
  • Purwanto, Nur M.Adhi
  • Kurniati, Ina Nurmalia
  • Fauziah, Nanda Rizki
  • Aqmaliyah, Euis

Abstract

This study examines the effect of capital inflows on bank credit in Indonesia. Using aggregate and bank-level data (consist of all 115 commercial banks in Indonesia) from 2004Q1 to 2017Q4) and three approaches, namely structural vector autoregression (SVAR), logistic regressions, and panel regressions, it finds that capital inflows initially has a negative impact on bank credit (measured as credit per gross domestic product (GDP)), but the impact becomes positive after a year. Other investment has the largest impact on bank credit, when compared with other capital inflows, including trade credit and foreign loans. These inflows significantly influence growth in nominal bank credit.

Suggested Citation

  • Mara, Mirza Yuniar Isnaeni & Purwanto, Nur M.Adhi & Kurniati, Ina Nurmalia & Fauziah, Nanda Rizki & Aqmaliyah, Euis, 2021. "Capital flow and banking credit in Indonesia," Economic Modelling, Elsevier, vol. 95(C), pages 298-310.
    • Handle: RePEc:eee:ecmode:v:95:y:2021:i:c:p:298-310
    DOI: 10.1016/j.econmod.2020.02.047
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    References listed on IDEAS

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    1. Enrique G. Mendoza & Marco E. Terrones, 2008. "An Anatomy Of Credit Booms: Evidence From Macro Aggregates And Micro Data," NBER Working Papers 14049, National Bureau of Economic Research, Inc.
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    9. Hwa, Tng Boon & Raghavan, Mala & Huey, Teh Tian, 2017. "Macro-financial effects of portfolio flows: Malaysia’s experience," Working Papers 2017-07, University of Tasmania, Tasmanian School of Business and Economics.
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    Cited by:

    1. Advis Budiman & Solikin M. Juhro & Sugiharso Safuan, 2024. "Capital Flow and Bank Lending Channels in a Small Open Economy: Evidence from Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 27(2), pages 169-228, May.
    2. Büyükbaşaran, Tayyar & Karasoy-Can, Gökçe & Küçük, Hande, 2022. "Macroeconomic effects of bank lending in an emerging economy: Evidence from Turkey," Economic Modelling, Elsevier, vol. 115(C).
    3. Zhang, Lili & Yang, Dexiang & Guo, Yunfei, 2023. "Dual circulation development model and credit growth," Finance Research Letters, Elsevier, vol. 55(PA).

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    More about this item

    Keywords

    Banking credit; Capital flows; Panel data models; SVAR;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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