Foreign Direct Investment in the Financial Sector: The Engine of Growth for Central and Eastern Europe?
Vienna University of Economics and B.A., Europainstitut Working Papers No. 69
60 Pages Posted: 17 Jan 2006 Last revised: 10 Feb 2011
Date Written: December 1, 2005
Abstract
This paper examines the impact of financial sector foreign direct investment (FSFDI) on economic growth by estimating a panel data model for 11 Central and Eastern European countries (CEECs) between 1996 and 2003 in a cross-country growth accounting framework. The analysis concentrates on the efficiency channel linking FSFDI to economic growth. The results clearly indicate that there can be a relationship between FSFDI and economic growth. Approaching a medium degree of financial M&A is rewarded by higher economic growth after two periods. Beyond it, FSFDI seems to spur economic growth depending on a higher human capital stock. FSFDI-induced knowledge-spillovers to domestic banks can be an explanation for this phenomenon. Above a certain threshold, the crowding-out of local physical capital caused by the entry of a foreign bank seems to hamper economic growth. The value of the paper lies in (1) providing novel data on FSFDI in CEECs, (2) analyzing the impact of FDI on a sectoral level and (3) in modeling the hitherto only qualitatively discussed relationship between foreign banks and economic development into a structural, econometric model that combines two streams of economic research: the FDI-growth-literature and the finance-growth-literature.
Keywords: financial sector foreign direct investment, economic growth, financial economics, transitional economies, panel data analysis
JEL Classification: C23, E22, E44, F15, F23, F36, G15, G21, G34, M16, O11, O12, O16, O57, P2, P34
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Financial Dependence and Growth
By Raghuram G. Rajan and Luigi Zingales
-
Stock Markets, Banks, and Growth: Panel Evidence
By Thorsten Beck and Ross Levine
-
Stock Markets, Banks, and Growth: Panel Evidence
By Thorsten Beck and Ross Levine
-
Stock Markets, Banks, and Economic Growth
By Ross Levine and Sara Zervos
-
Financial Development and Economic Growth: Views and Agenda
By Ross Levine
-
Stock Markets, Banks, and Growth: Correlation or Causality
By Thorsten Beck and Ross Levine
-
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Finance, Firm Size, and Growth
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Finance, Firm Size, and Growth
By Thorsten Beck, Asli Demirgüç-kunt, ...
-
Financial Intermediation and Growth: Causality and Causes
By Ross Levine, Norman Loayza, ...