Role of Financial Sector FDI in Regional Imbalances in Visegrad 4 Countries and in Slovenia

Abstract

The paper deals with the implication of the financial crisis on the FDIs.

The author draws readers’ attention to the role of FDI in the CEE banking sector in the post-transition period and discusses the impact of the crisis, which has become the most serious challenge of transition models in the banking sectors. The author argues that foreign direct investments (FDI) have been substantial in the financial services sector of the Visegrad countries (Czech Republic, Hungary, Poland, Slovakia) and Slovenia, resulting in a dominant share of foreign capital and a large share of the sector in the stock of FDI already in the pre-crisis era. The paper shows that the CEE banking sector represents a ‘dual-banking system’ model that can be characterised by weak local banking structures and dependence on foreign institutions and their resources.

The paper identifies to what extent the banking system integration of the CEE contributed to the regional imbalances within the European Union and the Eurozone. This paper investigates whether these imbalances are linked to the sectoral composition of FDI. The author finds that this model can potentially transmit cross-border exogenous shocks to the region.

Keywords: Financial FDI, CEE, financial crisis, dual banking, foreign banks, regional imbalances

JEL Classification: F21, F32, F 34, F36, G01, G21