The share of domestic bank credit allocated to non-financial business declined significantly in EMU economies since 1990. This paper examines the impact of capital inflows on domestic credit allocation, taking account of (future) EMU membership. The study utilizes a novel data set on domestic credit allocation for 38 countriesover 1990–2011 and data on capital inflows into the bank and non-bank sectors. We estimate panel models controlling for initial financial development, income level, inflation, interest rate, credit market deregulation and current account positions. The results suggest that the decline in the share of credit to non-financial business was significantly larger in (future) EMU economies which experienced more capital inflows into their non-bank sectors. We discuss implications.
|Naam||SOM Research Reports|
|Uitgeverij||SOM Research School|