An Empirical Evaluation of the Growth of Shadow Banking and its Effect on Emerging Market Economies' Financial Stability using Panel Data
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Abstract
This study aims to understand the growth of shadow banking in emerging market economies that experienced significant macroeconomic changes post-financial crisis of 2008. The current research attempts to investigate the impact of the development of shadow banking on financial stability. Panel data regressions are applied to eleven emerging market economies, considering economic growth and asset returns as proxies for financial stability. The results from 2010 to 2018 indicate that the impact of growth in shadow banking is prominent on asset returns compared to economic growth. As market-based funding is expected to operate parallel to traditional banks, shadow banking activities will contribute to expanding and facilitating investment and market liquidity, a finding that has direct relevance and applicability.