Foreign Direct Investment in the Financial Sector and Economic Growth in Central and Eastern Europe: The Crucial Role of the Efficiency Channel

Posted: 19 Dec 2008

See all articles by Markus Eller

Markus Eller

Oesterreichische Nationalbank (OeNB)

Peter R. Haiss

WU Vienna University of Economics and Business; UniCredit Bank Austria; IES Vienna - Institute for the International Education of Students

Katharina Steiner

Oesterreichsiche Nationalbank (OeNB)

Date Written: 2006

Abstract

We examine the impact of financial sector FDI (FSFDI) on economic growth via the efficiency channel. We estimate a panel data model for 11 Central and Eastern European countries in a cross-country growth accounting framework over 1996 to 2003. We find a hump-shaped impact of FSFDI on economic growth. Medium FSFDI supports growth if human capital suffices. Above a certain threshold, crowding-out of local physical capital via foreign bank entry slows growth. We combine the FDI-growth and the finance-growth-literature and conclude that the level and quality of foreign investment influences the financial sectors' contribution to growth in emerging markets.

Keywords: Financial sector foreign direct investment, Economic growth, Financial economics, Emerging markets, Panel data analysis

JEL Classification: C23, F36, G10, O16, P2

Suggested Citation

Eller, Markus and Haiss, Peter R. and Steiner, Katharina, Foreign Direct Investment in the Financial Sector and Economic Growth in Central and Eastern Europe: The Crucial Role of the Efficiency Channel (2006). Emerging Markets Review, Vol. 7, No. 4, 2006, Available at SSRN: https://ssrn.com/abstract=1317611

Markus Eller

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3
Vienna, A-1090
Austria
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+43 1 404 20-045227 (Fax)

HOME PAGE: http://www.oenb.at/en/Monetary-Policy/Research/Researchers/Markus-Eller.html

Peter R. Haiss (Contact Author)

WU Vienna University of Economics and Business ( email )

Institute for Production Management
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Vienna, A-1020
Austria
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UniCredit Bank Austria ( email )

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Vienna, A-1020
Austria
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++43-(0)50505 89 44214 (Fax)

HOME PAGE: http://www.bankaustria.com

IES Vienna - Institute for the International Education of Students

Johannesgasse 7
Vienna, A-1010
Austria

Katharina Steiner

Oesterreichsiche Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna, A-1011
Austria

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