Working Paper: CEPR ID: DP5954
Authors: Maria Lehner; Monika Schnitzer
Abstract: Foreign bank entry is frequently associated with spillover effects for local banks and increasing competition in the local banking market. We study the impact of these effects on host countries. In particular, we ask how these effects interact and how they depend on the competitive environment of the host banking market. An increasing number of banks is more likely to have positive welfare effects the more competitive the market environment, whereas spillovers are less likely to have positive welfare effects the stronger competition. Hence, competitive effects seem to reinforce each other, while spillovers and competition tend to weaken each other.
Keywords: competition in banking; foreign bank entry; multinational bank; spillovers
JEL Codes: F37; G21; L13; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| foreign bank entry (F21) | spillover effects (F69) |
| spillover effects (F69) | screening abilities of domestic banks (G21) |
| spillover effects (F69) | investment incentives of domestic banks (G21) |
| competition (L13) | investment incentives of domestic banks (G21) |
| number of banks (G21) | repayment rates (G51) |
| repayment rates (G51) | investment incentives of domestic banks (G21) |
| spillover effects + competition (F69) | investment incentives of domestic banks (G21) |
| spillover effects + competition (F69) | welfare (I38) |