Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel [An article from: Emerging Markets Review]

This digital document is a journal article from Emerging Markets Review, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
We examine the impact of financial sector FDI (FSFDI) on economic growth via the efficiency channel. We estimate a panel data model for 11 Central and Eastern European countries in a cross-country growth accounting framework over 1996 to 2003. We find a hump-shaped impact of FSFDI on economic growth. Medium FSFDI supports growth if human capital suffices. Above a certain threshold, crowding-out of local physical capital via foreign bank entry slows growth. We combine the FDI-growth and the finance-growth-literature and conclude that the level and quality of foreign investment influences the financial sectors' contribution to growth in emerging markets.