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Signals of foreign bank entry on real sector FDI and foreign trade and their impact on economic development in the New EU Member States

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  • Roessl, Petra
  • Haiss, Peter

Abstract

Does financial sector foreign direct investment (FSFDI) trigger general capital inflows and foreign trade? Do these inflows to New EU Member States (NMS) provide positive signals (Spence, 1973) towards economic development or 'crowd out' investment and trade? While the direct impact of financial deepening has received much attention (Hasan, Wachtel, Zhou, 2006; Detragiache, Tressel, Gupta, 2006), indirect effects have received less consideration. To fill this gap, we review the literature on possible links and provide descriptive data for NMS. We apply regression analysis and find coherence between FSFDI and non-financial FDI and trade in Bulgaria and Croatia, but there are various directions in which developmental repercussions can go and the impact on trade is not as significant as the effect on nonfinancial FDI. We argue that the relative impact of FSFDI, real sector FDI and trade needs to be taken into consideration in shaping economic policies conducive to economic development.

Suggested Citation

  • Roessl, Petra & Haiss, Peter, 2008. "Signals of foreign bank entry on real sector FDI and foreign trade and their impact on economic development in the New EU Member States," Proceedings of the German Development Economics Conference, Zurich 2008 36, Verein für Socialpolitik, Research Committee Development Economics.
    • Handle: RePEc:zbw:gdec08:36
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    References listed on IDEAS

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    5. Dániel Holló & Márton Nagy, 2006. "Bank Efficiency in the Enlarged European Union," MNB Working Papers 2006/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    foreign banks; economic development; foreign trade; FDI; signal theory;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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