Foreign Direct Investment in the Banking Sector: a Transitional Economy Perspective
AbstractIn this paper we use new statistics on FDI in transitional economies (TEs) to analyze the issue of foreign ownership in the banking sector, examining the implications for the host banking sector. After considering the potential benefits and risks associated with foreign investment in the banking sector, and on the basis of some empirical results, we reach the conclusion that FDI provides valuable opportunities for the development of the host banking sector. However, we find that substantial foreign ownership is necessary if there is to be a positive effect on bank profitability and cost efficiency. We also analyze the determinants of FDI location choices in TEs. Our evidence indicates that political and economic stability, existing trade linkages, features of the host banking sector, and the host country's attitude towards foreign institutions are relevant factors in catalyzing FDI in the banking sectors of TEs. We also provide evidence for FDI determinants, distinguishing among different levels of foreign partnership.
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Bibliographic InfoPaper provided by Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali in its series Working Papers with number 113.
Date of creation: Apr 1999
Date of revision:
Other versions of this item:
- Luca Papi & Debora Revoltella, 1999. "Foreign Direct Investment in the Banking Sector: A Transitional Economy Perspective," Development Working Papers 133, Centro Studi Luca d\'Agliano, University of Milano.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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