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Financial liberalization, multinational banks and credit supply: The case of Poland

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  • Weller, Christian E.

Abstract

Part of the Polish transformation process has been an opening of the domestic financial market to foreign entrants. While the number of MNBs rises from zero to fifteen within six years, the ratio of bank credit to private and public enterprises relative to GDP decreases continuously after 1991. In this paper, I develop an argument as to why these two trends may be connected. Further, using monthly data provided by the weekly Polish publication Gazeta Bankowa, by the National Bank of Poland, the Central Statistical Office, the BIS, and the IMF, I test the hypothesis that more MNB entry may lead to a declining credit supply during the early stages of the transition process. Multivariate regression results indicate that more MNB entry results in a lower credit supply by Polish banks during the early transition phase. This result holds regardless of the measurement of international financial competition, and regardless of a bank’s history, and it is only partially affected by a bank’s location. More importantly, the overall impact of increased international financial competition on the credit supply of Polish banks is strong enough to lower the total credit supply in the Polish economy. Since an earlier study has found that Polish industries operate under hard budget constraints and are finance constrained during the early stages of the transition process, a reduction in the credit supply has adverse effects on business investments (Cornelli, Portes, and Schaffer, 1996; Weller, 1999). --

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Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 10-1999.

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Date of creation: 1999
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Handle: RePEc:zbw:zeiwps:b101999

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Keywords: Multinational banks; credit supply; financial liberalization; transition economy; Poland;

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  1. Weller, Christian E., 1999. "The finance-investment link in a transition economy: Evidence for Poland from panel data," ZEI Working Papers B 04-1999, ZEI - Center for European Integration Studies, University of Bonn.
  2. Brainard, Lawrence J., 1990. "Capital markets in Korea and Taiwan: Emerging opportunities for foreign banks," Journal of Asian Economics, Elsevier, Elsevier, vol. 1(1), pages 173-177.
  3. Begg, David & Portes, Richard, 1992. "Enterprise Debt and Economic Transformation: Financial Restructuring of the State Sector in Central and Eastern Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 695, C.E.P.R. Discussion Papers.
  4. Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
  5. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 700, C.E.P.R. Discussion Papers.
  6. Mark Gertler, 1988. "Financial structure and aggregate economic activity: an overview," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 559-596.
  7. Corbett, Jennifer & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress With the Wrong Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 603, C.E.P.R. Discussion Papers.
  8. Ursacki, Terry & Vertinsky, Ilan, 1992. "Choice of entry timing and scale by foreign banks in Japan and Korea," Journal of Banking & Finance, Elsevier, Elsevier, vol. 16(2), pages 405-421, April.
  9. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1989. "Macroeconomic models with equity and credit rationing," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  10. Cornelli, F. & Portes, R. & Schaffer, M., 1996. "The Capital Structure of Firms in Central and Eastern Europe," DELTA Working Papers, DELTA (Ecole normale supérieure) 96-05, DELTA (Ecole normale supérieure).
  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  12. Thomas S. Mondschean & Timothy P. Opiela, 1997. "Banking reform in a transition economy: the case of Poland," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Mar, pages 16-32.
  13. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 185, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Santonu Basu, 2006. "Structural Problems in Financing Development: Issues Relating to India," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(1), pages 85-101.
  2. Weller, Christian E. & Scher, Mark J., 1999. "Multinational banks and development finance," ZEI Working Papers B 16-1999, ZEI - Center for European Integration Studies, University of Bonn.
  3. Weller, Christian E. & von Hagen, Jürgen, 1999. "Financial fragility or what went right and what could go wrong in central European banking?," ZEI Working Papers B 13-1999, ZEI - Center for European Integration Studies, University of Bonn.
  4. Mejra Festić, 2011. "The role of the foreign banks in the 5 EU member states," Journal of Business Economics and Management, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 189-206, June.
  5. Saovanee Chantapong, 2005. "Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis," Economic Change and Restructuring, Springer, Springer, vol. 38(1), pages 63-83, 03.
  6. Chantapong, Saovanee & Menkhoff, Lukas, 2005. "Cost Efficiency of Domestic and Foreign Banks in Thailand: Evidence from Panel Data," Proceedings of the German Development Economics Conference, Kiel 2005 9, Verein für Socialpolitik, Research Committee Development Economics.
  7. Christian E. Weller & Ghazal Zulfiqar, 2013. "Financial Market Diversity and Macroeconomic Stability," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp332, Political Economy Research Institute, University of Massachusetts at Amherst.

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