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Capital Flows and Domestic Financial Sector in India

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  • Renu Kohli

    (Reserve Bank of India)

Abstract

This paper examines the impact of capital flows on the domestic financial sector in India. Inflow of foreign capital, it is found, has a significant impact on domestic money supply and stock market growth, liquidity and volatility. The banking sector, however, remains relatively insulated due to the policy responses of the central bank and barriers to direct capital inflows into the banking system. The paper concludes with a discussion of the costs of these policies in the event of a heavy inflow of foreign capital.

Suggested Citation

  • Renu Kohli, 2004. "Capital Flows and Domestic Financial Sector in India," International Finance 0405012, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0405012 Note: Type of Document - pdf; pages: 7
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    File URL: http://econwpa.repec.org/eps/if/papers/0405/0405012.pdf
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    References listed on IDEAS

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    1. Claessens, Stijn & Dooley, Michael P & Warner, Andrew, 1995. "Portfolio Capital Flows: Hot or Cold?," World Bank Economic Review, World Bank Group, vol. 9(1), pages 153-174, January.
    2. Linda M. Koenig, 1996. "Capital Inflows and Policy Responses in the AsEAN Region," IMF Working Papers 96/25, International Monetary Fund.
    3. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    4. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    6. Reinhart, Carmen & Khan, Mohsin, 1995. "Capital Flows in the APEC Region," MPRA Paper 8200, University Library of Munich, Germany.
    7. Renu Kohli & Kenneth Kletzer, 2001. "Financial Repression and Exchange Rate Management in Developing Countries; Theory and Empirical Evidence for India," IMF Working Papers 01/103, International Monetary Fund.
    8. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dr. Md. Izhar Ahmad & Tariq Masood, 2015. "Macroeconomic Implications of Capital Inflows in India," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 53-71.
    2. Esteban Gómez & Andrés Murcia Pabón & Nancy Zamudio Gómez, "undated". "Foreign Debt Flows and Domestic Credit: A Principal-Agent Approach," Temas de Estabilidad Financiera 075, Banco de la Republica de Colombia.
    3. Narayan Sethi, 2012. "Inflows and their Macroeconomic Impact in India a VAR Analysis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 93-142, December.
    4. Pami Dua & Partha Sen, 2006. "Capital Flow Volatility And Exchange Rates-- The Case Of India," Working papers 144, Centre for Development Economics, Delhi School of Economics.
    5. Sayantan Bandhu Majumder & Ranjanendra Narayan Nag, 2016. "Understanding the Behaviour of Capital Flow and its Components: The Indian Experience," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(3), pages 355-380, August.
    6. Masood, Tariq & Ahmad, Mohd. Izhar, 2009. "Macroeconomic Implications of Capital Inflows in India," MPRA Paper 19299, University Library of Munich, Germany, revised 06 Oct 2009.

    More about this item

    Keywords

    capital flows; domestic financial sector; India; money supply; stock market; volatility; banking sector; capital account liberalisation; management of capital;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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