Working Paper: CEPR ID: DP10139
Authors: Caroline van Rijckeghem; Beatrice Weder di Mauro
Abstract: We propose a general specification to estimate the strength of the flight home effect, provide a decomposition into lender and recipient effects and country-by country measures. Flight home occurs when the change in domestic credit extended by domestic banks cannot be accounted for by recipient or lender effects. Based on break-adjusted BIS data, we find evidence of flight home for almost all banking systems with the notable exception of Canada, the US and Japan. In periods of relative calm, reversals of the home bias are small. The result is cumulative renationalization of bank lending.
Keywords: deglobalization; financial protectionism; international banking system
JEL Codes: E52; F34; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Global financial crisis (F65) | Increased domestic lending relative to foreign lending (F65) |
| Banking system stress (G21) | Increased home bias in lending (G21) |
| Deteriorating bank health (G21) | Increased domestic lending (G21) |
| Internationally active banking systems (F65) | Systematically higher flight home effect (L93) |
| Flight home effect (L93) | Varies across countries and periods (N23) |