Impact Of Capital Inflows Research Articles

Impact of capital inflows on bank profitability: a comparative analysis of dual banking systems

PurposeUsing data on 739 banks from 22 countries with a dual banking system from 2012 to 2019, this paper aims to examine whether capital inflows affect banks’ profitability in recipient countries.Design/methodology/approachThe authors check the conjecture about the effect of capital inflows on the profitability of the host country’s banks by estimating the following regression:Pict=α0+α1·CFct+α2·Islamici+α3·CFct×Islamici+δ·Xict+θ·Yct+εict (1)where the dependent variable (Pict) refers to bank profitability, measured by either ROA or ROE for bank i, country c and year t. ROA is defined as the ratio of net profit to average total assets expressed as a percentage, which determines how efficiently a bank uses its assets to generate a profit. ROE is defined as the ratio of net profit to average total equity expressed as a percentage, which is a measure of increases in shareholders’ wealth.FindingsThe authors find that capital inflows are generally positively associated with bank profitability. However, cross-border capital inflows reduce the rate of return in Islamic banks relative to their conventional counterparts. When decomposing inflows by instrument, the authors find that the enhancing role of capital inflows on bank profitability comes mainly from debt inflows and borrowers; the authors observe that the documented results emanate mostly from the inflows to the financial sector. These results remain unchanged if holding a bank’s risk constant. Overall, foreign funds in the form of debt inflows targeting the financial sector can disproportionately improve the performance of commercial banks in recipient countries.Originality/valueThe paper is an original research project. The analysis contributes to the existing literature in several ways: the authors study whether the impact of capital inflows on bank profitability varies with the bank business model by looking at both the Islamic and conventional bank systems. The profitability of the banking system is an important catalyst for growth and stability. The authors also decompose capital inflows to recipient countries into their equity and debt components and study the differential impact of those components on the profitability of Islamic and conventional banks.

The impact of capital Inflow's features on the effectiveness of capital controls - Evidence from multinational data

This paper explores how features of capital inflow affect the effectiveness of capital controls from three aspects: capital types, inflow intensity, and channels diversity. Empirical results by using multinational data show that capital controls are more effective in an economy with lower degree of capital account openness, when there are more short-term capital inflows and in an intense inflows period. This study is helpful to explain the inconsistency of conclusions about the effectiveness of capital controls in existing studies, and has certain policy implications to curb excessive capital flows for governments.

The impacts of capital inflows on bank lending in the ASEAN-6 countries

PurposeThe authors investigate the impacts of international capital inflows on bank lending in the Association of Southeast Asian Nations-6 (ASEAN-6) countries on the dynamics of both bank loan volumes and credit risk-taking. The authors further explore the heterogenous impacts of different components of the foreign capital. As a robustness check, the authors also examine the role of crisis periods and agency problem on the relationship between international capital inflows and bank lending.Design/methodology/approachThe authors explore the impacts of international capital inflows on bank lending in the ASEAN-6 countries, including Malaysia, Indonesia, Thailand, Philippines, Singapore and Vietnam. The authors employ quarterly data from 2005Q1 to 2021Q2 from 45 commercial banks in the ASEAN-6 countries. The article uses bank-fixed and time-fixed effects in the panel dataset to account for any unobserved heterogeneity.FindingsThe authors find that capital inflows to the ASEAN-6 countries are associated with higher bank loan growth and lower loan loss provisions to net interest income ratios. Moreover, the positive relationships between capital inflows to the bank loan growth and credit risk-taking are mainly driven by the dynamics in foreign direct investments (FDIs) and other inflow (OI) components. Contrary to the global financial crisis (GFC), the authors note that the mediating role of capital inflows on bank lending is of particular importance in the COVID-19 pandemic.Research limitations/implicationsThis study has some limitations that provide vendors for future research. First, while the authors focus on the impact of capital inflows on bank-level lending activities, future research can also explore the role of foreign capital on bank efficiency and financial stability. Second, although foreign capital fluctuates the most during crisis periods, the movement of capital inflows is also sensitive to other periods of heightened global uncertainty. Thus, rather than focus on the behavior of foreign capital during crisis periods, future research can examine and explore the impacts of capital inflows in different periods of “stop” and “surge” for sudden contraction and boom in capital inflows to the ASEAN-6 countries.Originality/valueFirst, the authors provide a comprehensive analysis of international capital inflows' impact on bank lending in the ASEAN region on both bank loan volumes and credit risk-taking. Second, the authors provide evidence of the impact of different forms of foreign capital on the bank lending. Third, the authors investigate the heterogeneous impact of foreign capital on crisis periods and bank sizes, which the authors emphasize the unusual characteristics of the COVID-19 crisis compared with the GFC.

The impact of capital inflows on economic growth of Ghana: Does quality of institutions matter?

The economic growth of most developing countries has been abysmal, and, therefore, has attracted the attention of researchers and policy think tanks. The present study contributes by estimating the impact of different forms of capital inflows on economic growth with evidence from Ghana. The study further examines the interaction effects of these inflows and quality of institutions on economic growth. The capital inflows considered in the study are foreign direct investment, remittances, foreign aid and external debt. Using annual time series data, spanning 1984–2018, the autoregressive distributed lag model is employed for the analysis. The results without interaction terms show that remittances have a positive impact on economic growth, whereas external debt and foreign direct investment impact economic growth negatively in the long run. Foreign aid exerts an insignificant impact in both the short and long run. However, the results reveal that external debt significantly impacts economic growth positively when interacted with quality of institutions variable in the long run. The results further reveal that remittances have a positive impact on economic growth in the long run when interacted with quality of institutions variable. It is, therefore, concluded that the quality of institutions in Ghana is crucial for economic growth. Important policy implications aimed at improving economic growth have been provided based on the findings.

Impact of Capital Inflows on Domestic Investment: Evidence from Panel Data

Investment significance in any country cannot be ignored for its direct and indirect influences on the growth rate of the economy. Foreign capital inflows are one of the major determinants of domestic private investment. Hence, this study analyzes the effect of two kinds of foreign capital inflows, i.e. inward foreign direct investment and inward foreign remittances on domestic investment covering a sample of five South Asian economies from 1976 to 2017. The findings of the study reveal that both types of capital inflows raise the domestic investment and the role of remaining variables on investment is also positive and significant. The study recommended that steps should be undertaken to increase these foreign capital inflows to raise the domestic investment in these countries.

The Impact of Capital Inflows on Economic Growth in Nigeria: Empirical Evidence from Wavelet Coherence Technique

The Impact of Capital Inflows on Economic Growth in Nigeria: Empirical Evidence from Wavelet Coherence Technique

Impact of Capital Inflow on Economic Growth of South Asian Economies

The main objective of this research is to explore the impact of capital inflow on economic growth of South Asian economies (Bangladesh, India, Pakistan and Sri Lanka). The gross domestic saving, commercial bank & other lending and portfolio equity investment are the independent variables and the gross domestic product growth is the dependent variable. This study is consisting on panel-based data and the data was taken for the period of 1981 to 2016, which are 36 years. The data was collected from World Development Indicators (WDI) and Quandl on annual basis. Panel ARDL (PMG) model is applied to analyze the data. The results related to gross domestic saving shows that there is positive and significant long - run relationship present in between gross domestic saving and gross domestic product growth on the other hand the results related to short - run shows that there is negative and non-significant relationship present in between gross domestic saving and gross domestic product growth. The results related to portfolio equity investment shows that there is positive and significant long - run relationship present in between portfolio equity investment and gross domestic product growth on the other hand the results related to short - run shows that there is positive but non-significant relationship present in between portfolio equity investment and gross domestic product growth. The results related to commercial bank & other lending shows that there is negative and non-significant long - run relationship present in between commercial bank & other lending and gross domestic product growth on the other hand the results related to short - run shows that there is negative and non-significant relationship present in between commercial bank & other lending and gross domestic product growth. Keywords: Panel ARDL (PMG), Capital Inflow, Gross domestic Product Growth and South Asian Economies. DOI : 10.7176/DCS/9-4-02 Publication date : April 30 th 2019

Capital Inflows and Exports Diversification in Sub‐Saharan Africa during the MDGs Era

AbstractThis paper explores the impact of different forms of capital inflows, including foreign direct investment, foreign aid, portfolio investment, and remittances, on exports diversification in sub‐Saharan Africa during the Millennium Development Goals (MDGs) era. We employ the Generalized Method of Moments (GMM) estimator to deal with the endogeneity issue. Using a sample of 35 countries over the period 2000–15, it shows that the impact of capital inflows on exports diversification depends on the type of capital. We find evidence that foreign aid, foreign direct investment, and remittances have positive effects on exports diversification, while portfolio inflows negatively affect exports diversification. Moreover, we find that the impact of capital inflows on exports diversification differs across the region of destination of the exported products. This study underscores the important role of international cooperation and capital inflows in sub‐Saharan Africa, and lends support to policies aiming to attract foreign capital.

The Impact of Capital Inflows on Competitiveness of Pakistan’s Economy

Foreign capital and exchange earnings are required for economic growth and development. Foreign capital inflows received by the economies are distributed between non-tradable and tradable sectors. Yet, appreciation of real effective exchange rate (REER) might be instigated through an increase in the price of non-tradable commodities. Appreciation in the real exchange rate thus leads to loss of competitiveness, which in turn contract exports. Within this perspective, this paper investigates variations in competitiveness by considering the effects of different types of capital flows and some policy variables on the REER, for the period 1976-2015. Existing literature confirms positive effect of capital flows on the REER. By applying ARDL cointegration technique, this paper predicated that official development assistance, investment income, increased remittances, and other foreign investments lead to real appreciation whereas increased government expenditures cause a real depreciation. Terms of trade, trade opennesss, and foreign direct investment are identified to be statistically insignificant. Findings of the study drawn from the analysis of the influence of capital inflows and control variables have important implications for policies in the areas of domestic demand management, exchange rate management, export promotion, etc.

Does Foreign Capital Enhance Economic Growth In Emerging Countries: Flow Decomposition Approach?

Unlike trade liberalization, the impact of financial openness on growth is still mitigated. In fact, empirical studies focusing on effects of capital account liberalization are inconclusive, which could be due to the sample chosen, to the liberalization index or to the fact that studies take account of capital inflows as a whole which can mask substantial differences between different flow effects.Our purpose in this paper is on one hand to re-examine the impact of capital inflows on growth by dividing these inflows into portfolio equity flows, foreign direct investment flows and debt flows and on the other hand to study if the composition of capital inflows has an importance. This work will be done by estimating a standard growth model using dynamic panel data approach.Our main findings are first, that total capital inflows improve economic growth and so does every kind of flow taken apart; which supports the neoclassical wisdom and second, that capital inflows composition isn't important; which indicates that all inflows are substitutes in the short term.

The Impact of Capital Inflows on Asset Prices in Emerging Asian Economies: Is Too Much Money Chasing Too Little Good?

In recent years, emerging Asian economies have experienced (i) large capital inflows, especially a surge in portfolio inflows, and (ii) an appreciation of asset prices such as stocks, land, and nominal and real exchange rates. We empirically investigate the effects of capital inflows on asset prices by employing a panel VAR model. The empirical results suggest that capital inflows indeed have contributed to asset price appreciation in the region, although capital inflow shocks explain a relatively small part of asset price fluctuations.

Implications of the Malaysian Experience on Future International Financial Arrangements

I. Introduction In responding to the East Asian crisis, Malaysia took a different route from the other affected countries. At the onset of the crisis, Malaysia adopted policies similar to the other crisis-hit economies, namely tight monetary and fiscal policies and floating of the exchange rate. Despite these remedies, the economy continued to deteriorate and the exchange rate remained volatile, thus pushing the Malaysian Government to look for alternative measures. From the First Quarter of 1998, response to the crisis was directed towards the easing of monetary policy and introduction of fiscal stimulus but these measures were implemented in the middle of 1998. To stabilize the sinking exchange rate, Malaysia implemented selective capital controls in September 1998, pegged the ringgit to the U.S. dollar and restricted short-term capital flows. Initially, Malaysia's action was condemned but international opinion has changed somewhat during this recovery period. The debate is whether the Malaysian experience can provide a lesson for other small open economies (which are overwhelmed by huge short-term capital flows) or it is a just case of one country defying the global trend. This article is organized as follows. Section II summarizes the impact of capital inflow on Malaysia. Section III details the selective capital controls measures taken, and Section IV discusses the offshore market for Malaysian securities as well as the offshore ringgit market. Section V analyses the result of the recovery measures taken by Malaysia. Section VI draws some lessons from the Malaysian experience. II. The Impact of Capital Flows on the Malaysian Economy From 1992 to the period just before the East Asian crisis, Malaysia had enjoyed a large inflow of foreign capital, both long and short term. Long-term private capital (foreign direct investment) had always been the most reliable source of external financing for Malaysia since it started to open its doors to private capital flows. Table 1 shows that the long-term private capital flow had increased steadily over the years and the flow was especially strong in the 1990s. In 1990, about US$2.3 billion of the private long-term capital came into Malaysia and this had more than doubled in 1997 (US$5.1 billion). During the 1990-97 period, the cumulative FDI inflow was US$34.8 billion. A comparison of FDI flow in 1998 in U.S. dollar terms is problematic due to the large volatility of the exchange rate. However, in ringgit terms, the FDI flow in 1998 (RM 13.1 billion) was higher than that of 1997 (RM 11.5 billion) (Ministry of Finance, Malaysia 1999). TABLE 1 Net Balance of Payments of Malaysia (In US$ millions) Item 1990 1991 1992 Merchandise f.o.b. 2,627.04 526.91 3,376.08 Balance on services -3,601.11 -4,798.18 -5,712.94 Balance on goods and services -974.07 -4,271.27 -2,336.86 Unrequited transfers 54.44 37.09 132.16 Balance on current account -919.63 -4,234.18 -2,204.71 Official long-term capital -1,050.37 -241.82 -1,127.84 Federal Government -291.48 38.55 -1,243.14 Market loans 364.07 118.91 -1,121.18 Project loans 134.81 -20.00 -72.16 Suppliers' credit -62.22 -60.36 -49.80 Non-financial Public Enterprises -764.44 -269.09 152.55 Other assets and liabilities 5.56 11.27 -37.25 Private long-term capital 2,336.67 3,998.55 5,178.04 Balance on long-term capital 1,286.30 3,756.73 4,050.20 Basic balance 366.67 -477.45 1,845. …

The Effects of Foreign Capital Inflows

This thesis analyzes the pre-1996 foreign capital inflows to Korea and the major impact of macroeconomic variables, discussed the background of South Korean foreign exchange crisis. VAR model using the analysis results reflect the impact of capital inflows and the increase in the volume of overseas department of communication makes the current account deteriorated, and no increase in revenue. It is well known that the positive effects of free capital flows can lower interest rates, but after 1980 the results of analysis of data showed that, despite the freedom of capital inflows, but interest rates did not decline. In contrast, the increase in domestic credit makes incomes increase, although in the short term, but it makes interest rates decline. Under the circumstance than the inflow of overseas capital did not bring positive effects to economic circumstances, although the private sector (private enterprises) and the number of financial institutions has worsened the financial structure, but the government finances and private consumption has been showing a strong and stable trend, deflation does not exist. One particularly striking is the sudden increase of the phenomenon of short-term debt, although a higher proportion of short-term debt, but the basic conditions for economic point of view, the inevitability and certainty of the foreign exchange crisis, there is still room for debate.