The effects of foreign bank presence on financial development in Africa: The role of institutional quality

Abstract

AbstractDespite the momentous rise in concentration and market share of foreign banks in overall bank assets in Africa, rigorous empirical work(s) examining their effect on financial sector development in Africa is hard to find. In view of this, the study seeks to investigate the moderating role of institutions/governance on the foreign bank presence‐financial development nexus. Employing the two‐step system generalized method of moment for a panel dataset of 28 economies in Africa over the period, 2000–2018, the results show that foreign bank presence has a positive effect on financial development. Also, the study finds evidence that foreign banks in host countries increase financial development in the presence of quality institutions. The study recommends improvement in institutional quality, which will help foreign banks to promote financial development.