Foreign bank penetration, resource allocation and economic growth: evidence from emerging economies
AbstractThis 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34946.
Date of creation: 22 Dec 2009
Date of revision:
Publication status: Published in Journal of Economic Integration 1.25(2010): pp. 167-193
foreign bank penetration; economic growth; resource allocation;
Other versions of this item:
- Nam Jeon, Bang & Wu, Ji, 2010. "Foreign Bank Penetration, Resource Allocation and Economic Growth: Evidence from Emerging Economies," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 25, pages 167-193.
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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