## Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries

_IMF Working Papers, September 24, 2021_

## Source details

**Canonical URL:** [Opening Up: Capital Flows and Financial Sector Dynamics in Low-Income Developing Countries](https://www.imf.org/en/publications/wp/issues/2021/09/24/opening-up-capital-flows-and-financial-sector-dynamics-in-low-income-developing-countries-465828)

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## Bibliographic details
- Authors: Sebastian Horn, Futoshi Narita
- Published: September 24, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513597720.001

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### Key findings
- Over the past two decades, many low-income developing countries have substantially increased openness towards external financing and have received large capital inflows.
- Capital inflows have been associated with financial deepening through increases in:
  - bank loans,
  - deposits,
  - wholesale funding.
- Domestic banks increase loans more than foreign banks.
- There are only modest signs of a build-up in financial vulnerabilities.
- Evidence points toward limited global push effects and highlights the importance of domestic pull factors.

### Methodology and identification
- Analysis uses bank-level micro data.
- Causality is examined through:
  - an instrumental variable approach,
  - an augmented inverse-probability weighting estimator.

### Subject tags and scope
- Subjects: Balance of payments; Capital flows; Capital inflows; Economic and financial statistics; Financial institutions; Financial sector policy and analysis; Financial sector risk; Financial statistics; Loans.
- Keywords: bank characteristic; Capital flows; Capital inflows; Commonwealth and Development Office; Financial sector risk; Financial statistics; Global; Loans; low-income developing countries; micro data; research project; U.K.'s Foreign.

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_Source: https://www.imf.org/en/publications/wp/issues/2021/09/24/opening-up-capital-flows-and-financial-sector-dynamics-in-low-income-developing-countries-465828_