Bonanzas, Booms and Banking Crises
by
Kuntal K. Das1 Joe Stuart
Department of Economics and Finance, University of Canterbury, Christchurch 8140, New Zealand
December 2022
Abstract
The paper analyses the risks posed by sudden increase in international capital inflows, termed as “bonanzas”, to the financial system. We test to see if gross and net inflow bonanzas increase the probability of banking crises. We also test which of the three components of capital inflows:
foreign direct investment (FDI), portfolio equity and debt contribute more to this probability.
We find that both gross and net inflow bonanzas increase the occurrence of banking crises.
However, we find that gross inflows are more risky than net inflows. Furthermore, we find that debt inflows are the riskiest component for both gross and net inflow bonanzas. Our results have important implications for the management of cross-border international capital flows and the stability of the financial system.
1 Corresponding author. Email – [email protected]
