Foreign Direct Investment in the Banking Sector: A Transitional Economy Perspective
In this paper we use new statistics on Foreign Direct Investments (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 on the banking sector, and on the basis of some empirical results, we reach the conclusion that foreign direct investment is associated with higher profitability; however a substantial foreign ownership is necessary if there is to be a positive effect on cost efficiency. We also analyze the determinants of FDI location choices in TEs providing new empirical evidence, and distinguishing among different levels of foreign partnership.
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