Foreign Banks in Poor Countries : Theory and Evidence

Journal Issue

Volume/Issue:: 2006/18
Series:: IMF Working Papers
Author(s):: Enrica Detragiache, Poonam Gupta, and Thierry Tressel
Publisher:: INTERNATIONAL MONETARY FUND
Published Date:: January 2006
DOI:: http://dx.doi.org/10.5089/9781451862782.001
ISBN:: 9781451862782
ISSN:: 1018-5941
Page:: 50

We study how foreign bank penetration affects financial sector development in poor countries. A theoretical model shows that when foreign banks are better at monitoring highend customers than domestic banks, their entry benefits those customers but may hurt other customers and worsen welfare. The model also predicts that credit to the private sector should be lower in countries with more foreign bank penetration. In the empirical section, we show that, in poor countries, a stronger foreign bank presence is robustly associated with less credit to the private sector both in cross-sectional and panel tests. In addition, in countries with more foreign bank penetration, credit growth is slower and there is less access to credit. We find no adverse effects of foreign bank presence in more advanced countries.

Foreign Banks in Poor Countries: Theory and Evidence

Foreign Banks in Poor Countries: Theory and Evidence

Article

Foreign Banks in Poor Countries

Author(s):: Enrica Detragiache, Poonam Gupta, and Thierry Tressel
Published Date:: January 2006

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Foreign Banks in Poor Countries : Theory and Evidence

Foreign Banks in Poor Countries

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