Owen, Ann L. and Temesvary, Judit (2012): Foreign lending, local lending, and economic growth.
Download (254kB) | Preview
Recent research has shown that there is significant cross-country heterogeneity in the previously well-established relationship of finance and long-run growth. We explore this heterogeneity by estimating finite mixture models and by considering the effects of foreign and domestic lending separately. We find that bank lending does not have the same effect on growth or savings in all countries. Country characteristics such as the extent of stock market development, the degree of rule of law, and even the development of the banking sector itself vary considerably across countries and affect the productivity of bank lending in encouraging growth and savings. Furthermore, the effect of bank finance on growth and the effect of foreign bank involvement depend on 1) how well developed the banking sector is, and 2) if foreign banks are involved via loans made by affiliates located within the country or via cross-border loans. The experience of lenders with a presence in the country is important, but only once a threshold level of financial sector development is reached. In countries with underdeveloped banking sectors, the influence of foreign-owned lenders relative to locally-owned banks can be detrimental to growth.
|Item Type:||MPRA Paper|
|Original Title:||Foreign lending, local lending, and economic growth|
|Keywords:||finance and growth; finite mixture models; cross-border lending|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Ann L. Owen|
|Date Deposited:||10. Jul 2012 02:32|
|Last Modified:||23. Mar 2015 07:04|
Alfaro, Laura, Areendam Chanda and Sebnem Kalemli-Ozcan. 2004. “FDI and Economic Growth: The Role of Local Financial Markets.” Journal of International Economics 64, no. 1: 89-112.
Alfo, M., Giovanni, T., & Robert, J. W. 2008. “Testing for Country Heterogeneity in Growth Models Using a Finite Mixture Approach.” Journal of Applied Econometrics, 23, 487–514.
Beck, Thorsten, Ross Levine and Norman Loayza. 2000. “Finance and the Sources of Growth.” Journal of Financial Economics 58: 261-300.
Bloom, D. E., C. David and S. Jaypee. 2003. “Geography and Poverty Traps.” Journal of Economic Growth, 8, 355–378.
Borensztein, E., J. de Gregorio, and J. W. Lee. 1998. “How Does Foreign Direct Investment Affect Economic Growth?” Journal of International Economics 45, no. 1: 115-35.
Bos, J.W.B., C. Economidou, M. Koetter, and J.W. Kolari, 2010. “Do all Countries Grow Alike?” Journal of Development Economics 91, no. 1: 113-27.
Cetorelli, Nicola and Linda S. Goldberg. 2011.”Global Banks and International Shock Transmission: Evidence from the Crisis.” International Monetary Fund Economic Review, 59: 41-76.
Cetorelli, Nicola and Linda S. Goldberg. 2012. “Liquidity Management of U.S. Banks: Internal Capital Markets in the Great Recession,” Journal of International Economics, forthcoming.
Cetorelli, Nicola and Pietro Peretto. 2012. “Credit Quantity and Credit Quality. Bank Competition and Capital Accumulation,” Journal of Economic Theory, forthcoming.
Claessens, Stijn, Asli Demirguc-Kunt and Harry Huizinga. 2001. “How Does Foreign Entry Affect Domestic Banking Markets?” Journal of Banking & Finance 25: 891-911.
Clarke, George, Robert Cull, Maria Soledad Martinez Peria and Susana M. Sanchez. 2001.”Foreign Bank Entry: Experience, Implications for Developing Countries, and Agenda for Further Research.” The World Bank Research Observer 18, no. 1: 25-59.
Demetriades, Panikos and Khaled Hussein. 1996.”Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries.” Journal of Development Economics 51: 387-411.
Demirguc-Kunt, Asli, Ross Levine and H.G. Min.1998.”Opening to Foreign Banks: Issues of Stability, Efficiency and Growth.” In S. Lee, ed., The Implications of Globalization of World Financial Markets. Seoul: Bank of Korea.
Demirguc-Kunt, Asli and Ross Levine. 2001. Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development (Cambridge: MIT Press).
Goldberg, Linda. 2007.”Financial Sector FDI and Host Countries: New and Old Lessons.” Federal Reserve Bank of New York Economic Policy Review: 1-17.
King, Robert G. and Ross Levine. 1993. “Finance and Growth: Schumpeter Might Be Right.” Quarterly Journal of Economics 108, no. 3: 717-737.
Levine, Ross and Sara Zervos. 1998. “Stock Markets, Banks and Economic Growth.” The American Economic Review 88, no. 3: 537-558.
Mishkin, Frederic S. 2003. “Financial Policies and the Prevention of Financial Crises in Emerging Market Countries.” In Martin Feldstein, ed., Economic and Financial Crises in Emerging Market Countries: 93-130. Chicago: University of Chicago Press.
Mishkin, Frederic S. 2007.”Is Financial Globalization Beneficial?” Journal of Money, Credit and Banking 39, no 2-3: 259-294.
Owen, Ann L., Julio Videras, and Lewis Davis. 2009. “Do All Countries Follow the Same Growth Process?” Journal of Economic Growth, 14(4): 265-286.
Paap, R., Franses, P. H., & Dijk, D. 2005. “Does Africa grow slower than Asia, Latin America and the Middle East? Evidence from a new data-based classification method.” Journal of Development Economics, 77, 553–570.
Peria, Maria Soledad Martinez and Sergio L. Schmukler. 2001.”Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises.” The Journal of Finance 56, no. 3: 1029-1051.
Rajan, Raghuram G. and Luigi Zingales. 1998.”Financial Dependence and Growth.” The American Economic Review 88, no. 3: 559-586.
Rioja, Felix and Neven Valev. 2004. “Does One Size Fit All?: a Re-examination of the Finance and Growth Relationship.” Journal of Development Economics 74: 429-447.
Rousseau, Peter and Paul Wachtel. 2002. “Inflation Thresholds and the Finance-Growth Nexus.” Journal of International Money and Finance 21, no. 6: 777-793.
Rousseau, Peter and Paul Wachtel. 2011. “What is Happening to the Impact of Financial Deepening on Economic Growth?” Economic Inquiry 49, no. 1: 276-288.
Skrondal, and S. Rabe-Hesketh. 2004. Generalized latent variable modeling: Multilevel, longitudinal, and structural equation models. Boca Raton, Florida: Chapman & Hall/CRC.
Temesvary, Judit. 2011. “The Determinants of U.S. Banks’ International Activities.” Cornell University.
Yilmazkuday, Hakan. 2011. “Thresholds in the Finance-Growth Nexus: A Cross-country Analysis.” The World Bank Economic Review 25, no. 2: 278-295.