Bank Foreign Direct Investment Research Articles

Bank Foreign Direct Investment in Indian Economy: A Theoretical Review

The study's primary objective is to understand the evolution of foreign direct investment theories (FDI) and identify the application theories in bank FDI from the literature. Based on the pattern of investment, FDI can be classified as greenfield and brownfield investment. Both types of investments yield profits, so the study attempted to answer why greenfield FDI, i.e., foreign banks invest by opening their branches and offices in the host economy. The study reviewed literature focused on bank FDI determinants in host economies and discussed it in the Indian context. The study found that primary reasons for greenfield FDI are India's locational advantages, such as profit opportunity and already present home clients in India.

Determinants of Bank Foreign Direct Investment Inflow in India: A Dynamic Panel Data Approach

India received highest foreign direct investment (FDI) in the world during the first half of 2015, leaving bigger economies like the US and China behind. In the process of globalization, India has liberalized all its sectors and invited FDI in most of the sectors, albeit with a sectoral cap. Internationalization of banks is perhaps the best example of India’s globalization. There are 44 foreign banks with 300 branches operating in India having a cap of 74 per cent and 20 per cent foreign investment in private and public sector banks, respectively. The present study aims to determine the motives behind bank FDI inflow into India. To accomplish that, a county-wise panel was constructed and bank FDI data from 2001 to 2013 was analyzed through generalized method of moments, a dynamic panel data model. The result of the study shows that bank FDI follows overall FDI, indicating that foreign banks follow their clients from their home country to serve them in the host country. However, locational advantages offer them profit-making opportunities and thus play a limited role in drawing bank FDI, which contribute to the development of the Indian economy. The argument that bank FDI inflow increases during a period of crisis is not relevant in the Indian context. The study suggests increasing the FDI cap in banking sector to attract more FDI and further relax the current restrictive policy on entry of foreign banks in India.

Assessment of Impact of Foreign Direct Investment in India FDI in Banking and Finance

The Foreign Direct Investment (FDI) environment in India has undergone a drastic change since the economic reforms in 1991. The positive changes can be particularly attributed to the evolving policy framework. The main thrust of the financial sector reforms has been the creation of efficient and stable financial institutions and development of the markets, especially the money and government securities market. Indian banks going global and many global banks setting up shops in India, the Indian banking system is set to involve into a totally new level it will help the banking system grow in strength going into the future. India offers attractive investment opportunities for foreign companies and has adopted a number of policies to attract foreign direct investment into the country and the country seems to offer perhaps one of the most liberal FDI regimes in Asia. It’s even reviewed that the investment climate has not improved in India as a result of lack of good governance, corruption, political instability and disturbance, bureaucratic inertia, and poor law and order situation. Indian government incentives to foreign investors, particularly Special Economic Zones, the Indian regulatory environment as it affects investment, and the effect of India’s global, regional, and bilateral trade agreements on investment from the United States and other countries.

Intra-industry trade in financial services

Intra-industry trade (IIT) has been central to increasing the variety of products available to consumers. Unlike traditional trade theories, the recent trade theories have placed an emphasis on the role of foreign direct investment (FDI) in generating trade and increasing the volume of IIT. This study is the first study of intra-industry trade in banking services in which the key elements of the new trade theories of IIT have been taken into account in measuring the determinants of IIT in banking services. The empirical results of the determinants of IIT in banking services indicate that factor endowments, average per-capita income, FDI in banking, economies of scale in the banking sector, trade intensity between the US and its partners and market openness make a positive contribution to the volume of IIT in banking services. Furthermore, the empirical results indicate that intra-trade activities amongst the US multinational corporations reduce the level of IIT in banking services for the US.

Aspects of international financial services

The purpose of this paper is to discuss the issues related to international financial services, particularly foreign direct investment in banking. The paper discusses the challenges of measuring incomes generated from the activities of multinational banks, including their international lending and direct investment in host countries. The paper highlights the complementary role of FDI and trade in financial services and discusses investment in banking services. The patterns of FDI in banking in Eastern European countries, Latin America and East Asia are also analysed with a focus on the costs and benefits of FDI in banking in the emerging countries.

International financial services: determinants of banks’ foreign assets held by non-banks

Banks’ foreign assets held by non-banks are part of the growing volume of international trade in financial services. This paper investigates, for the first time, the determinants of banks’ assets held by non-banks for Germany, Japan, the United Kingdom and the United States. The underlying model used to measure banks’ foreign assets held by non-banks in this study, is based on those models which have measured the determinants of banks’ total foreign assets and international inter-bank activities. The empirical results of this model suggest a positive relationship with foreign direct investment in banking and banks’ foreign assets held by non-banks. Other significant factors identified include bilateral trade, the value of national income, and the real interest rate differential. Furthermore, banks’ foreign assets held by non-banks are found to be significantly related to the respective level of inter-bank dealings, such that a restriction on the overall amount of activities exists. Finally, global bank flows of opposite directions are found to be positively correlated, highlighting the fact that the perceived risk of foreign lending is reduced by simultaneous increases in banks’ foreign liabilities.

International investment in insurance services in the US

The purpose of this study is to analyze and discuss the determinants of foreign direct investment (FDI) in insurance services in the US. This study demonstrates that solid economic fundamentals in the host countries are the major factors which attract FDI in insurance services, while the uncertainty of the international exchange market increases the investment risk and reduces foreign investors’ willingness to invest. The empirical results of this study indicate that national income (NI), the source countries’ insurance market size and financial development (FD) of the host countries contribute to the expansion of FDI in insurance services, while the relatively higher wages and higher cost of capital in the host countries discourage FDI in insurance services. The empirical results also suggest that FDI in insurance services complement FDI in banking as well as total trade in insurance services.

International investment in financial services

This paper analyzes and models the significant components of international trade in financial services, namely, foreign direct investment in banking for the US, the UK and Germany. It distinguishes between banks' activities abroad and FDI in banking by banks and non-banks. A model for FDI in banking is proposed which contains certain explanatory variables peculiar to FDI in banking as compared to FDI in manufacturing. The components of the model of FDI in banking is different from those models designed to explain banks activities abroad. The empirical results of this study of FDI in banking indicate that bilateral trade, banks' foreign assets, the cost of capital, relative economic growth, exchange rates and FDI in non-finance industries are the major determinants of foreign investment in banking.

Cost of capital and Australia's banking investment abroad

As foreign direct investment in banking is part of trade in financial services and as the prospects of Australia's trade in financial services to Asian countries has increased, this paper intends to analyse and measure Australia's foreign direct investment in banking. The paper distinguishes between banks' activities abroad and investors' (banks and nonbanks) FDI in banking. The flow model of FDI in banking based on the eclectic theory of FDI identifies those factors which are most relevant to financial services as opposed to manufacturing. The empirical results of this study indicate that the relative cost of capital, the size of the foreign banking market, the exchange rate, relative economic growth, FDI in manufacturing and Australia's banks' foreign assets are the major determinants of her FDI in banking.

International Retail Banking as a Strategy: An Assessment

We assess the viability of a bank's strategy of entering into retail banking worldwide, wherever regulations permit, via a review of literature and evidence on foreign direct investment in banking. Issues we discuss include the roles of regulation, the costs of operating at a distance and in an unfamiliar environment, and the advantages or offsetting factors which foreign banks may possess relative to their local competitors. The factors the paper examines are uncompetitive host markets, product differentiation, economies of scale, management and technology, cost of capital, government support, and vertical integration.