How international capital inflows and domestic financial institutional development affect domestic credit: Evidence from developing countries

Figures & data

Table 1. Data summary

Variable	Unit	Min	Max	Mean	Std. Dev
Domestic Credit to Private Sector	Percentage of GDP	1.596	160.12	38.18	29.15
Domestic Credit to Private Sector by Banks	Percentage of GDP	1.344	123.065	34.383	23.468
GDP Per Capita	Logarithm Form	2.513	4.695	3.455	0.455
Current Account Balance	Percentage of GDP	−65.029	45.454	−3.171	9.721
Nominal exchange rate	LCU per USD	0.269	13389.413	628.239	1740.146
The VIX Index	Index	11,090	32,693	18,759	6,720
International capital inflows to bank	Percentage of GDP	−12.045	28.698	0.681	2.3142
International capital inflows to other financial institution	Percentage of GDP	−28.073	32.1753	0.943	3.538
Financial institution Index	Index 0–1	0.038	0.7399	0.352	0.137
Financial Institution Depth Index	Index 0–1	0.002	0.8837	0.189	0.180
Financial Institution Access Index	Index 0–1	0.005	0.7408	0.247	0.178
Financial Institution Efficiency Index	Index 0–1	0.119	0.8897	0.615	0.137

Table 2. Correlations pairs

	logGDPcap	CAB	ERTS	Bank-inflows	Other-inflows	Insti	Depth	Acces	Efficiency
LogGDPcap	1
CAB	0.333	1
ERTS	−0.175	−0.133	1
Bankinflows	0.105	−0.155	−0.022	1
Otherinflows	−0.101	−0.283	0.022	0.072	1
Insti	0.72	0.133	−0.193	0.130	−0.065	1
Depth	0.521	0.137	−0.183	0.062	−0.93	0.843	1
Acces	0.681	0.016	−0.157	0.105	−0.006	0.784	0.453	1
Efficiency	0.383	0.185	−0.071	0.149	0.041	0.577	0.358	0.170	1

Table 3. Panel unit root test

Variable	Levin-Lin-Chu	Augmented Dickey Fuller
Dcps (% of GDP)	−5.464 ***	−8.846 ***
Bankcredit (% of GDP)	−3.115 ***	−8.775 ***
LogGDPpercapita (Log of GDP per capita)	−6.382 ***	−8.472 ***
CAB (% of GDP)	−8.382 ***	−8.978 ***
ERTS (LCU per USD)	−10.382 ***	−7.568 ***
Bankinflows (% of GDP)	−20.459 ***	−9.048 ***
Otherinflows (% of GDP)	−16.208 ***	−9.341 ***

Notes. Panel unit root is not tested for all indicators of financial institutions development index variable and dummy variable for the GFC. These variables are containing either index or dummy (0 and 1) value, which is irrelevant for the test in this respect.

*** Significant at 1 %; ** significant at 5 %; * significant at 10 %

Table 4. Results of Arellano and Bond (1991) dynamic panel data estimation. Dependent variable (Y): Domestic credit to the private sectors (% of GDP)

	I	II	III	IV	V	VI
Dcps (−1)	0.750 ***(0.000)	0.7078 ***(0.000)	0.572 ***(0.000)	0.749 ***(0.000)	0.754 ***(0.000)	0.671 ***(0.056)
LogGDPpercapita	13.708(0.124)	3.156(0.753)	10.116 (0.241)	12.635(0.197)	11.136(0.202)	5.327(8.842)
CAB	−0.208 ***(0.001)	−0.201 ***(0.001)	−0.159 ***(0.002)	−0.207 ***(0.001)	−0.209 ***(0.001)	−0.201 ***(0.059)
ERTS	−0.001 **(0.020)	−0.001 ***(0.007)	−0.000(0.211)	−0.001 **(0.011)	−0.001 **(0.016)	−0.001 **(0.001)
Bankinflows	0.308 ***(0.008)	0.290 **(0.012)	0.203 *(0.056)	0.319 ***(0.005)	0.292 **(0.010)	0.778 ***(0.283)
Otherinflows	−0.138 **(0.049)	−0.130 **(0.038)	−0.123 **(0.042)	−0.128 *(0.060)	−0.133 **(0.049)	−0.279 **(0.165)
Insti		35.959 ***(0.000)				38.232 ***(8.314)
InstiDepth			96.723 ***(0.000)
InstiAcces				5.112 (0.417)
InstiEfficiency					7.519 ***(0.001)
Bankinflows.Insti						−1.192 **(0.651)
Otherinflows.Insti						0.414(0.385)
Observations	814	814	814	814	814	814
AR (1)	0.00	0.00	0.00	0.00	0.00	0.00
AR (2)	0.26	0.27	0.50	0.30	0.30	0.45

Notes. All sub-models were estimated using Arellano and Bond (1991) dynamic panel data estimation. AR (1) and AR (2) show the results of the LM statistics for autocorrelation (null hypothesis: no first-order autocorrelation and no second-order autocorrelation, respectively). Standard errors are in parentheses, and the p-values are in brackets. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Table 5. Coefficient value of interaction term analysis and their signs

$\frac{Y}{\mathrm{\Delta }Bankinflows}$	0.778 − 1.192.Insti
	Insti > 0.653 = −Insti < 0.653 = +
$\frac{Y}{\mathrm{\Delta }Otherinflows}$	-
	-

Table 6. The results of the robustness check by using a different measure of domestic credit. Dependent variable (Y): Domestic credit to the private sectors provided by banking sector (% of GDP)

	I	II	III	IV	V	VI
Bankcredit (−1)	0.773 ***(0.000)	0.778 ***(0.000)	0.734 ***(0.000)	0.623 ***(0.000)	0.781 ***(0.000)	0.775 ***(0.000)
LogGDPpercapita	11.570(0.165)	11.248(0.179)	1.123(0.905)	7.270 (0.373)	9.578(0.272)	8.860(0.278)
CAB	−0.187 ***(0.003)	−0.191 ***(0.003)	−0.172 ***(0.003)	−0.139 ***(0.009)	−0.180 ***(0.003)	−0.183 ***(0.003)
ERTS	−0.001 **(0.013)	−0.001 **(0.014)	−0.001 ***(0.084)	−0.000(0.1149)	−0.001 **(0.012)	−0.001 **(0.007)
Bankinflows	0.312 ***(0.008)	0.305 ***(0.008)	0.293 **(0.014)	0.220 *(0.050)	0.322 ***(0.006)	0.295 **(0.011)
Otherinflows	−0.098(0.123)	−0.108(0.100)	−0.090(0.132)	−0.067(0.216)	−0.085 (0.164)	−0.096(0.126)
VIX		−0.072 **(0.012)
Dummy		0.699(0.178)
Insti			34.222 ***(0.000)
Depth				79.967 ***(0.000)
Acces					3.433 (0.522)
Efficiency						7.818 ***(0.001)
Observations	814	814	814	814	814	814
AR (1)	0.00	0.00	0.00	0.00	0.00	0.00
AR (2)	0.90	0.83	0.83	0.46	0.88	0.94

Notes. All sub-models were estimated using Arellano and Bond (1991) dynamic panel data estimation. AR (1) and AR (2) show the results of the LM statistics for autocorrelation (null hypothesis: no first-order autocorrelation and no second-order autocorrelation, respectively). Standard errors are in parentheses, and the p-values are in brackets. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Table 7. The results of the robustness check by including the structural change (the impact of GFC of 2008/ 2009). Dependent variable (Y): Domestic credit to the private sectors (% of GDP)

	I	II
Dcps (−1)	0.706 ***(0.000)	0.702 ***(0.000)
LogGDPpercapita	3.880(0.715)	6.772(0.519)
CAB	−0.204 ***(0.001)	−0.204 ***(0.001)
ERTS	−0.001 **(0.005)	−0.001 ***(0.001)
Bankinflows	0.276 **(0.023)	0.404 ***(0.002)
Otherinflows	−0.146 **(0.032)	−0.117 *(0.072)
Insti	38.880 ***(0.001)	41.112 ***(0.001)
Dummycrisis	−0.417(0.262)	0.001(0.981)
Bankinflows.Crisis		−0.670 ***(0.002)
Otherinflows.Crisis		−0.087(0.267)
Observations	814	814
AR (1)	0.00	0.00
AR (2)	0.28	0.50

Notes. All sub-models were estimated using Arellano and Bond (1991) dynamic panel data estimation. AR (1) and AR (2) show the results of the LM statistics for autocorrelation (null hypothesis: no first-order autocorrelation and no second-order autocorrelation, respectively). Standard errors are in parentheses, and the p-values are in brackets. ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively.

Table

Albania	Cambodia	Ghana	Lesotho	Panama	Tanzania
Algeria	Cameroon	Guatemala	Madagascar	PNG	Tajikistan
Angola	Chile	Guinea	Maldives	Peru	Tunisia
Argentina	Colombia	Guinea Bissau	Malaysia	Philippines	Uruguay
Armenia	Costa Rica	Honduras	Mali	Senegal
Azerbaijan	Cote de Ivoire	India	Mexico	Sierra Leone
Bangladesh	Dominica	Indonesia	Moldova	Sri Lanka
Belarus	Dominican Republic	Jamaica	Morocco	Suriname
Benin	Ecuador	Jordan	Myanmar	South Africa
Bolivia	Egypt	Kazakhstan	Namibia	Swaziland
Bosnia & Herzegovina	El Salvador	Kenya	Niger	Thailand
Botswana	Fiji	Kuwait	Nigeria	Togo
Brazil	Georgia	Kyrgyz Republic	North Macedonia	Trinidad and Tobago
Burkina Faso	Gambia	Lebanon	Pakistan	Turkey

Table

No.	Code	Description	Measurement	Data sources
1.	Dcps	Domestic credit to the private sectors.	% of GDP	World Bank:https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS
2.	Bankcredit	Domestic credit to the private sectors by banks	% of GDP	World Bank: https://data.worldbank.org/indicator/FD.AST.PRVT.GD.ZS
3.	LogGDPpercapita	GDP per capita	Log of GDP per capita	World Bank:https://data.worldbank.org/indicator/NY.GDP.PCAP.CD
4.	CAB	Current account balance	% of GDP	World Bank:https://data.worldbank.org/indicator/BN.CAB.XOKA.GD.ZS
5.	ERTS	Nominal (official) exchange rate	LCU per USD	World Bank:https://data.worldbank.org/indicator/PA.NUS.FCRF
6.	VIX	The Chicago Board Options Exchange Volatility Index (The VIX Index)	Index	FRED economic data:https://fred.stlouisfed.org/series/VIXCLS
7.	Dummy	A dummy variable for the global financial crisis of 2008/2009	2008 and 2009 = 1; other years = 0	-
8.	Bankinflows	International capital (Debt) inflows to the banking sector	% of GDP	IMF BOP data (BPM6)https://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52
9.	Otherinflows	International capital (Debt) inflows to other financial institutions	% of GDP	IMF BOP data (BPM6)https://data.imf.org/?sk=7A51304B-6426-40C0-83DD-CA473CA1FD52
10.	Insti	Financial institution index	Index 0–1	IMF:https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B
11.	Depth	Financial institution depth index	Index 0–1	IMF:https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B
12.	Access	Financial institution access index	Index 0–1	IMF: https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B
13.	Efficiency	Financial institution efficiency index	Index 0–1	IMF: https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B

Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

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The authors confirm that the data supporting the findings of this study are available within the article [and/or] its supplementary materials.