Non-bank Financial Intermediation and Capital Flows: Evidence from Emerging Market Economies

AGUIRRE, HORACIO; PÉREZ ARTICA, RODRIGO

Córdoba

Congreso; LVII Reunión Annual de la Asociación Argentina de Economía Política; 2021

Asociación Argentina de Economía Política

We look at the interplay of non-bank financial intermediation (NBFI) and capital flows in emerging market economies (EMEs). We examine whether gross capital flows to twenty-four EMEs, including seven Latin American economies, are related to foreign bond holdings of non-bank financial intermediaries, over and above local and global factors. We estimate panel data models that account for cross-country correlation, using quarterly data from the dataset by Arslanalp and Tsuda (2014) in the 2004-2021 period. We discriminate flows by sectors (total, government, corporate and banking), include time and country fixed effects, and employ several definitions of our variable of interest: either as a categorical variable, that captures those countries with the largest share of foreign nonbank investors, or as a direct measure of their participation. [We alsocarry out event studies around the occurrence of the global financial crisis (2008) and the covid-19 crisis (2020).] Our preliminary results suggest that during the post-global financial crisis period, foreign NBFI magnifies the impact of global factors on capital inflows, while they weaken the pull oflocal factors.