Foreign bank participation in developing countries : what do we know about the drivers and consequences of this phenomenon?
AbstractForeign bank participation has increased steadily across developing countries since the mid-1990s. This paper documents this trend and surveys the existing literature to explore the drivers and consequences of this phenomenon, paying particular attention to the differences observed across regions both in the degree of foreign bank participation and in the impact of this process. Local profit opportunities, the absence of barriers to entry, and the presence of mechanisms to mitigate information problems have been the main factors driving foreign bank entry across developing countries. In general, foreign bank participation has been shown to exert a positive influence on banking sector efficiency and competition. The weight of the evidence suggests that foreign bank presence does not endanger, but rather enhances banking sector stability. And although some case studies suggest that foreign bank entry limits access to finance, many cross-country studies offer evidence to the contrary.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 5398.
Date of creation: 01 Aug 2010
Date of revision:
Banks&Banking Reform; Debt Markets; Access to Finance; Emerging Markets; Foreign Direct Investment;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-BAN-2010-08-21 (Banking)
- NEP-IFN-2010-08-21 (International Finance)
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