Foreign Banks in Poor Countries
AbstractWe study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when foreign banks are better at monitoring highend customers than domestic banks, their entry benefits those customers but may hurt other customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration. In the empirical section, we show that, in poor countries, a stronger foreign bank presence is robustly associated with less credit to the private sector both in cross-sectional and panel tests. In addition, in countries with more foreign bank penetration, credit growth is slower and there is less access to credit. We find no adverse effects of foreign bank presence in more advanced countries.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 06/18.
Date of creation: 01 Jan 2006
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-05 (All new papers)
- NEP-DEV-2006-03-05 (Development)
- NEP-FMK-2006-03-05 (Financial Markets)
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- Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007.
"Private credit in 129 countries,"
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Research Department Publications, Inter-American Development Bank, Research Department
4379, Inter-American Development Bank, Research Department.
- Eduardo Levy Yeyati & Alejandro Micco & Ugo Panizza, 2004. "Should the Government Be in the Banking Business?: The Role of State-Owned and Development Banks," IDB Publications 6684, Inter-American Development Bank.
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