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Financial liberalization, multinational banks and credit supply: The case of Poland

  • Weller, Christian E.

Part of the Polish transformation process has been an opening of the domestic financial market to foreign entrants. While the number of MNBs rises from zero to fifteen within six years, the ratio of bank credit to private and public enterprises relative to GDP decreases continuously after 1991. In this paper, I develop an argument as to why these two trends may be connected. Further, using monthly data provided by the weekly Polish publication Gazeta Bankowa, by the National Bank of Poland, the Central Statistical Office, the BIS, and the IMF, I test the hypothesis that more MNB entry may lead to a declining credit supply during the early stages of the transition process. Multivariate regression results indicate that more MNB entry results in a lower credit supply by Polish banks during the early transition phase. This result holds regardless of the measurement of international financial competition, and regardless of a bank’s history, and it is only partially affected by a bank’s location. More importantly, the overall impact of increased international financial competition on the credit supply of Polish banks is strong enough to lower the total credit supply in the Polish economy. Since an earlier study has found that Polish industries operate under hard budget constraints and are finance constrained during the early stages of the transition process, a reduction in the credit supply has adverse effects on business investments (Cornelli, Portes, and Schaffer, 1996; Weller, 1999).

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Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 10-1999.

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Date of creation: 1999
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Handle: RePEc:zbw:zeiwps:b101999
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  1. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1989. "Macroeconomic models with equity and credit rationing," Proceedings, Federal Reserve Bank of San Francisco.
  2. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Cornelli, F. & Portes, R. & Schaffer, M., 1996. "The Capital Structure of Firms in Central and Eastern Europe," DELTA Working Papers 96-05, DELTA (Ecole normale supérieure).
  4. Bernanke, Ben & Gertler, Mark, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 87-114, February.
  5. Thomas S. Mondschean & Timothy P. Opiela, 1997. "Banking reform in a transition economy: the case of Poland," Economic Perspectives, Federal Reserve Bank of Chicago, issue Mar, pages 16-32.
  6. Corbett, Jennifer & Mayer, Colin, 1991. "Financial Reform in Eastern Europe: Progress With the Wrong Model," CEPR Discussion Papers 603, C.E.P.R. Discussion Papers.
  7. David Begg & Richard Portes, 1993. "Enterprise debt and economic transformation (Financial restructuring of the state sector in Central and Eastern Europe)," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 116-117, 01.
  8. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
  9. Mark L. Gertler, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," NBER Working Papers 2559, National Bureau of Economic Research, Inc.
  10. Christian Weller, 2001. "The Finance-Investment Link in a Transition Economy: Evidence For Poland From Panel Data," Comparative Economic Studies, Palgrave Macmillan, vol. 43(1), pages 31-52, April.
  11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  12. Brainard, Lawrence J., 1990. "Capital markets in Korea and Taiwan: Emerging opportunities for foreign banks," Journal of Asian Economics, Elsevier, vol. 1(1), pages 173-177.
  13. Ursacki, Terry & Vertinsky, Ilan, 1992. "Choice of entry timing and scale by foreign banks in Japan and Korea," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 405-421, April.
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