The impact of foreign banks in developing and transition economies

Abstract

Among policy circles, as well as the research community, a lot of heated debate has been generated regarding the impact of foreign direct investment (FDI) in the domestic banking sector of developing and transition economies. While there are many plausible arguments in favour of a policy of openness to FDI, there are also some concerns over the potential dangers of opening up the domestic banking market too quickly. In general, the arguments for and against foreign bank participation in developing and transition economies are not universally acceptable and there is lack of overwhelming evidence to support either side of the dichotomy. This paper is motivated to briefly review existing research, in order to disentangle the main arguments in favour of, and against, foreign bank entry and participation in these economies. The paper offers some concluding remarks after balancing the pros and cons of the debate.