Foreign Banks in Poor Countries: Theory and Evidence
We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when domestic banks are better than foreign banks at monitoring soft information customers, foreign bank entry may hurt these customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration, and that foreign banks should have a less risky loan portfolio. In the empirical section, we test these predictions for a sample of lower income countries and find support for the theoretical model. Copyright (c) 2008 The American Finance Association.
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Volume (Year): 63 (2008)
Issue (Month): 5 (October)
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- Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005.
"Private Credit in 129 Countries,"
NBER Working Papers
11078, National Bureau of Economic Research, Inc.
- 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 (Working Papers)
6684, Inter-American Development Bank.
- Eduardo Levy Yeyati & Alejandro Micco & Ugo Panizza, 2004. "Should the Government Be in the Banking Business? The Role of State-Owned and Development Banks," Research Department Publications 4379, Inter-American Development Bank, Research Department.
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