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How Does Foreign Bank Entry Affect Financial Inclusion in Emerging and Developing Economies?

Author

Listed:
  • Sasidaran Gopalan

    (Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

  • Ramikishen S. Rajan

    (School of Policy, Government and International Affairs (SPGIA), George Mason University)

Abstract

An important dimension of the effects of foreign bank entry on financial sector development relates to that of financial inclusion. Despite its policy significance, the empirical literature offers little evidence on the impact of bank competition generally or foreign bank entry specifically on financial inclusion. This paper examines the relationship between foreign bank entry and financial inclusion for a panel of 57 emerging and developing economies over the period 2004-2009. The empirical findings suggest that foreign banks have a positive impact in furthering financial inclusion, though the relationship turns negative when foreign bank entry is followed by greater banking concentration.

Suggested Citation

  • Sasidaran Gopalan & Ramikishen S. Rajan, 2015. "How Does Foreign Bank Entry Affect Financial Inclusion in Emerging and Developing Economies?," HKUST IEMS Working Paper Series 2015-04, HKUST Institute for Emerging Market Studies, revised Feb 2015.
    • Handle: RePEc:hku:wpaper:201504
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    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2007. "How banks go abroad: Branches or subsidiaries?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1669-1692, June.
    3. Baltagi, Badi H. & Demetriades, Panicos O. & Law, Siong Hook, 2009. "Financial development and openness: Evidence from panel data," Journal of Development Economics, Elsevier, vol. 89(2), pages 285-296, July.
    4. Clarke, George R.G. & Cull, Robert & Martinez Peria, Maria Soledad, 2006. "Foreign bank participation and access to credit across firms in developing countries," Journal of Comparative Economics, Elsevier, vol. 34(4), pages 774-795, December.
    5. Calderon, Cesar & Kubota, Megumi, 2009. "Does financial openness lead to deeper domestic financial markets ?," Policy Research Working Paper Series 4973, The World Bank.
    6. Colin Cameron, 2007. "Panel data methods for microeconometrics using Stata," West Coast Stata Users' Group Meetings 2007 13, Stata Users Group.
    7. World Bank, 2014. "Global Financial Development Report 2014 : Financial Inclusion," World Bank Publications - Books, The World Bank Group, number 16238, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sasidaran Gopalan, 2015. "Financial Liberalization and Foreign Bank Entry in Emerging and Developing Economies: What Does the Literature Tell Us?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-25.
    2. Khaldoun M. Al-Qaisi, 2018. "A Literature Review on the Competition in the Banking Sector," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(1), pages 174-184, January.
    3. Sasidaran Gopalan, 2015. "Foreign Banks in Emerging Markets: Advantage or Impediment?," HKUST IEMS Thought Leadership Brief Series 2015-04, HKUST Institute for Emerging Market Studies, revised Jan 2015.

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    More about this item

    Keywords

    foreign bank entry; financial liberalization; financial inclusion; financial development; banking concentration;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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