This paper uses issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. It shows that foreign inflows are strongly correlated with country-level issuance. The relation especially reflects the behavior of large firms. To identify supply-side shocks, capital inflows into each country are instrumented with exogenous changes in other countries’ attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented contemporaneous and lagged capital inflows lead large firms to raise new equity, which they use to fund investment.

We use a matching method that constructs synthetic counterfactual states to identify the channels that link bank deregulation to financial integration, and thereby to economic growth. We document a positive, but conditional, effect of financial integration on economic growth. We explore the heterogeneous effects of financial integration across states depending on the capital mobility in each state. Our results reveal a correlation between financial integration and subsequent banking sector changes related to an expansion in loan recipients. We show that financial integration democratizes lending and spurs economic growth.