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Foreign Direct Investment in the Banking Sector: a Transitional Economy Perspective


  • Luca PAPI

    () (Universit… Politecnica delle Marche, Dipartimento di Economia)




In this paper we use new statistics on FDI in transitional economies (TEs) to analyze the issue of foreign ownership in the banking sector, examining the implications for the host banking sector. After considering the potential benefits and risks associated with foreign investment in the banking sector, and on the basis of some empirical results, we reach the conclusion that FDI provides valuable opportunities for the development of the host banking sector. However, we find that substantial foreign ownership is necessary if there is to be a positive effect on bank profitability and cost efficiency. We also analyze the determinants of FDI location choices in TEs. Our evidence indicates that political and economic stability, existing trade linkages, features of the host banking sector, and the host country's attitude towards foreign institutions are relevant factors in catalyzing FDI in the banking sectors of TEs. We also provide evidence for FDI determinants, distinguishing among different levels of foreign partnership.

Suggested Citation

  • Luca PAPI & Debora REVOLTELLA, 1999. "Foreign Direct Investment in the Banking Sector: a Transitional Economy Perspective," Working Papers 113, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  • Handle: RePEc:anc:wpaper:113

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    References listed on IDEAS

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    Cited by:

    1. Wezel, Torsten, 2004. "Foreign Bank Entry into Emerging Economies: An Empirical Assessment of the Determinants and Risks Predicated on German FDI Data," Discussion Paper Series 1: Economic Studies 2004,01, Deutsche Bundesbank.
    2. Ugo Fratesi, 2003. "Innovation Diffusion and the Evolution of Regional Disparities," ERSA conference papers ersa03p327, European Regional Science Association.
    3. Claeys, Sophie & Hainz, Christa, 2006. "Acquisition versus greenfield: the impact of the mode of foreign bank entry on information and bank lending rates," Working Paper Series 653, European Central Bank.
    4. Alberto Franco Pozzolo, 2008. "Bank cross-border mergers and acquisitions (Causes, consequences and recent trends)," Mo.Fi.R. Working Papers 9, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. Giovanni Ferri & Alberto Franco Pozzolo, 2009. "Bank internationalization and trade: What comes first?," Mo.Fi.R. Working Papers 11, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    6. Várhegyi, Éva, 2001. "Külföldi tulajdon a magyar bankrendszerben
      [Foreign ownership in the Hungarian banking system]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 581-598.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy


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