Impact of foreign bank presence on foreign direct investment in China

S. Ongena, S. Qi, F. Qin

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We analyze the impact of foreign bank presence on foreign direct investment (FDI) in China. The connection between the two could be particularly relevant for an emerging economy like China because the supply of financial services provided by banks may act as a constraining factor. Foreign bank presence may then enable and foster FDI and not simply result from it. Our estimates demonstrate that FDI across regions in China is increasing in the existing network of regional branches of foreign banks, which itself is driven (and, therefore, instrumented) by the timing of the regional phasing out of the local limits for foreign banks on local currency business. The effect of foreign bank presence on FDI is particularly strong for some specific sectors (farming, manufacturing, construction, transportation, wholesale/retail trade and real estate) if those sectors are strongly represented in the source economies.

Data source: Almanac of China's Finance and Banking
Original languageEnglish
Pages (from-to)40-59
Number of pages20
JournalChina & World Economy
Volume23
Issue number4
DOIs
Publication statusPublished - 1 Jan 2015

Keywords

  • China
  • foreign bank presence
  • foreign direct investment
  • FINANCIAL DEVELOPMENT
  • ECONOMIC-GROWTH
  • ENTRY
  • DETERMINANTS
  • INDUSTRY
  • MARKETS
  • CREDIT

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