The effects of foreign bank entry on bank inflows in emerging economies

This study examines the impact of foreign bank entry on cross-border bank inflows into 33 emerging economies from 1995 to 2013. Using a bilateral country-level dataset, the analysis reveals three key findings. First, while the first entry of foreign banks does not significantly affect bank inflows from the home country of the foreign bank, the subsequent entries of foreign banks lead to a substantial increase in cross-border bank inflows to the host country. Second, subsequent-entry banks leverage the presence of incumbent foreign banks to attract bank flows more effectively. Third, our results stress the role of geographical proximity, shared institutional frameworks, and favorable economic conditions in both home and host countries as critical drivers of these inflows. These findings underscore the importance of policies that promote persistent openness to foreign banks while effectively mitigating potential risks.