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

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  • Subroto Rapih

    (Yamaguchi University
    Sebelas Maret University)

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.

Suggested Citation

  • Subroto Rapih, 2021. "Shadow banking and cross-border capital inflows: Does the development level of financial institutions matter?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 68(3), pages 331-355, September.
    • Handle: RePEc:spr:inrvec:v:68:y:2021:i:3:d:10.1007_s12232-021-00371-3
    DOI: 10.1007/s12232-021-00371-3
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    References listed on IDEAS

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    Cited by:

    1. Ozgur, Gokcer, 2023. "The cross-border interconnectedness of shadow banking," Economic Modelling, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Shadow banking; Cross-border capital flows; Financial institutions; Financial development;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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