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Foreign bank entry and poverty in Africa: Misaligned incentives?

Author

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  • Nanivazo, Joelle M.
  • Egbendewe, Aklesso Y.G.
  • Marcelin, Isaac
  • Sun, Wei

Abstract

This study investigates the link between industry reliance on external finance, real activity, and foreign bank entry to poverty reduction. Results show that foreign bank entry widens Africa's poverty gap, notably when financing to high value-added industry sectors remains low. Results are consistent with the cream-skimming intermediation hypothesis, occasioning a contraction of credit. By tendering credit to a broader set of firms in industries disproportionately reliant on external finance to grow, foreign banks may partially offset the welfare-reducing effect. However, foreign banks' role in driving down poverty rates is conditional to the host country's institutional quality – an institutional threshold beyond which foreign banks' entry may induce poverty-reducing effects, necessitating a minimum level enabling institutional environment in the host country.

Suggested Citation

  • Nanivazo, Joelle M. & Egbendewe, Aklesso Y.G. & Marcelin, Isaac & Sun, Wei, 2021. "Foreign bank entry and poverty in Africa: Misaligned incentives?," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000441
    DOI: 10.1016/j.frl.2021.101963
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    Cited by:

    1. Marcelin, Isaac & Egbendewe, Aklesso Y.G. & Oloufade, Djoulassi K. & Sun, Wei, 2022. "Financial inclusion, bank ownership, and economy performance: Evidence from developing countries," Finance Research Letters, Elsevier, vol. 46(PA).
    2. Marcelin, I. & Sun, W. & Teclezion, M. & Junarsin, E., 2022. "Financial inclusion and bank risk-taking: the effect of information sharing," Finance Research Letters, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Foreign bank entry; industry value-added; poverty reduction; institutional quality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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