Volatile Capital Flows and Economic Growth: The Role of Banking Supervision

Kyriakos Neanidis

doi:10.1016/j.jfs.2018.05.002

Volatile Capital Flows and Economic Growth: The Role of Banking Supervision

Kyriakos Neanidis

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

In this paper, we examine the links among banking supervision, the volatility of financial flows, and economic growth. In particular, we explore whether banking regulation mitigates the adverse effects of capital flows volatility on economic growth. Using crosscountry data over four decades, we find that banking supervision promotes economic growth by dampening the negative impact of volatile capital flows. The findings hold for both aggregate capital flows and its various components, and for both its net and gross counterparts, while they are also robust for various indicators of regulatory policies. The results support the argument that bank regulatory policy rules designed to ensure financial stability are beneficial to long-run economic growth.

Original language	English
Pages (from-to)	77-93
Number of pages	17
Journal	Journal of Financial Stability
Volume	40
DOIs	https://doi.org/10.1016/j.jfs.2018.05.002
Publication status	Published - 24 May 2018

Keywords

Banking supervision
Capital flows
Economic growth
Volatility

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.jfs.2018.05.002Licence: CC BY

Financial Volatility, Macroprudential Regulation and Economic Growth in Low-Income Countries (2014-2017)
Agenor, P.-R. (PI), Neanidis, K. (CoI), Chauvet, L. (CoI), Combes, J.-L. (CoI), Diaw, A. (CoI), Faye, I. (CoI), Ferry, M. (CoI), Goujon, M. (CoI), Guérineau, S. (CoI), Guillaumont, P. (CoI), Jeanneney, S. G. (CoI), Kinda, T. (CoI), Léon, F. (CoI), Mamadou, O. S. (CoI), Plane, P. (CoI), Tapsoba, J. S. (CoI) & Wagner, L. (CoI)
1/07/14 → 31/12/16
Project: Research

Cite this

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title = "Volatile Capital Flows and Economic Growth: The Role of Banking Supervision",

abstract = "In this paper, we examine the links among banking supervision, the volatility of financial flows, and economic growth. In particular, we explore whether banking regulation mitigates the adverse effects of capital flows volatility on economic growth. Using crosscountry data over four decades, we find that banking supervision promotes economic growth by dampening the negative impact of volatile capital flows. The findings hold for both aggregate capital flows and its various components, and for both its net and gross counterparts, while they are also robust for various indicators of regulatory policies. The results support the argument that bank regulatory policy rules designed to ensure financial stability are beneficial to long-run economic growth.",

keywords = "Banking supervision, Capital flows, Economic growth, Volatility",

author = "Kyriakos Neanidis",

note = "Funding Information: An earlier version of the paper was entitled “Volatile Capital Flows and Economic Growth: The Role of Macroprudential Regulation”. The author thanks participants for the comments received at the following conferences: 2nd International Conference in Applied Macro and Empirical Finance, 7th Ioannina Meeting on Applied Economics and Finance, the 48th Money Macro and Finance Conference, and the International Conference on “Capital Flows, Macroprudential Regulation and Financial Stability in Low-Income Countries”. Special thanks for their insightful comments and constructive suggestions go to Pierre-Richard Ag{\'e}nor, Luis Angeles, Bruno Cabrillac, Diane Coyle, Iftekhar Hasan, Kose John, Christos Kotsogiannis, Thanasis Stengos, and two anonymous referees who all helped to substantially improve the paper. Financial support from the DFID-ESRC Growth Research Programme, under Grant No. ES/L012022/1, is gratefully acknowledged. Appendix A Publisher Copyright: {\textcopyright} 2019 The Author Copyright: Copyright 2019 Elsevier B.V., All rights reserved.",

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N1 - Funding Information: An earlier version of the paper was entitled “Volatile Capital Flows and Economic Growth: The Role of Macroprudential Regulation”. The author thanks participants for the comments received at the following conferences: 2nd International Conference in Applied Macro and Empirical Finance, 7th Ioannina Meeting on Applied Economics and Finance, the 48th Money Macro and Finance Conference, and the International Conference on “Capital Flows, Macroprudential Regulation and Financial Stability in Low-Income Countries”. Special thanks for their insightful comments and constructive suggestions go to Pierre-Richard Agénor, Luis Angeles, Bruno Cabrillac, Diane Coyle, Iftekhar Hasan, Kose John, Christos Kotsogiannis, Thanasis Stengos, and two anonymous referees who all helped to substantially improve the paper. Financial support from the DFID-ESRC Growth Research Programme, under Grant No. ES/L012022/1, is gratefully acknowledged. Appendix A Publisher Copyright: © 2019 The Author Copyright: Copyright 2019 Elsevier B.V., All rights reserved.

PY - 2018/5/24

Y1 - 2018/5/24

N2 - In this paper, we examine the links among banking supervision, the volatility of financial flows, and economic growth. In particular, we explore whether banking regulation mitigates the adverse effects of capital flows volatility on economic growth. Using crosscountry data over four decades, we find that banking supervision promotes economic growth by dampening the negative impact of volatile capital flows. The findings hold for both aggregate capital flows and its various components, and for both its net and gross counterparts, while they are also robust for various indicators of regulatory policies. The results support the argument that bank regulatory policy rules designed to ensure financial stability are beneficial to long-run economic growth.

AB - In this paper, we examine the links among banking supervision, the volatility of financial flows, and economic growth. In particular, we explore whether banking regulation mitigates the adverse effects of capital flows volatility on economic growth. Using crosscountry data over four decades, we find that banking supervision promotes economic growth by dampening the negative impact of volatile capital flows. The findings hold for both aggregate capital flows and its various components, and for both its net and gross counterparts, while they are also robust for various indicators of regulatory policies. The results support the argument that bank regulatory policy rules designed to ensure financial stability are beneficial to long-run economic growth.

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Volatile Capital Flows and Economic Growth: The Role of Banking Supervision

Abstract

Keywords

UN SDGs

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Projects

Financial Volatility, Macroprudential Regulation and Economic Growth in Low-Income Countries (2014-2017)

Cite this