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Foreign Bank Penetration, Resource Allocation and Economic Growth: Evidence from Emerging Economies

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  • Nam Jeon, Bang

    ()
    (Drexel University, Philadelphia, PA)

  • Wu, Ji

    (Penn State University, Harrisburg, PA)

Abstract

This paper examines the implications of foreign bank penetration on economic growth from the perspective of resource allocation in host countries. We use aggregate banking data, constructed from bank-level balance sheets and income statement information covering more than 1200 banks in the 35 emerging economies of Asia, Latin America and Eastern and Central Europe for the period from 1996 to 2003. By applying the pooled OLS and fixed-effects models, we present consistent evidence that the effect of gross fixed capital formation on output growth is higher in an economy with a more pronounced level of foreign bank penetration relative to an economy with a lower level of foreign bank penetration. This finding suggests that foreign banks play an important role in allocating capital in a more productive way, thus leading to a higher economic growth rate. One of the main policy implications of our findings in this paper is that foreign banks may serve as a channel in enhancing economic integration of emerging economies with advanced economies that are the home countries of foreign banks.

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Bibliographic Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 25 (2010)
Issue (Month): ()
Pages: 167-193

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Handle: RePEc:ris:integr:0501

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Web page: http://econo.sejong.ac.kr/
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Keywords: foreign bank penetration; economic growth; resource allocation;

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References

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Cited by:
  1. Jeon, Bang Nam & Olivero, María Pía & Wu, Ji, 2011. "Do foreign banks increase competition? Evidence from emerging Asian and Latin American banking markets," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 856-875, April.
  2. Bang Nam Jeon & Ji Wu, 2014. "The Role of Foreign Banks in Monetary Policy Transmission: Evidence from Asia during the Crisis of 2008-9," Working Papers 012014, Hong Kong Institute for Monetary Research.

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