Financial Sector FDI and Host Countries: New and Old Lessons

17 Pages Posted: 26 Mar 2007

See all articles by Linda S. Goldberg

Linda S. Goldberg

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

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Abstract

Foreign direct investment (FDI) into the financial sectors of emerging economies soared during the 1990s, leaving many countries with banking sectors owned primarily by foreign institutions. While the implications of FDI into emerging markets are well documented, less clearly understood is how the host countries are affected by financial sector FDI specifically. An understanding of this relationship is crucial for countries formulating policy with respect to foreign banks. This article argues that many lessons learned from work on FDI into manufacturing and primary resource industries apply directly to host-country financial sectors. The author provides evidence on such themes as technology transfers, productivity spillovers, wage effects, macroeconomic growth, and fiscal policy to show that financial sector FDI into emerging markets generally has positive effects on the host countries. In banking and finance specifically, she argues that financial sector FDI can potentially strengthen institutional development through improvements to regulation and supervision.

Keywords: FDI, foreign direct investment, banks, globalization, emerging markets, institutions

JEL Classification: F3, F4

Suggested Citation

Goldberg, Linda S., Financial Sector FDI and Host Countries: New and Old Lessons. Economic Policy Review, Vol. 13, No. 1, March 2007. Available at SSRN: https://ssrn.com/abstract=973853

Linda S. Goldberg (Contact Author)

Federal Reserve Bank of New York ( email )

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New York, NY 10045
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National Bureau of Economic Research (NBER)

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