Does Foreign Bank Entry Contribute to Financial Depth?: Examining The Role of Income Thresholds

HKUST IEMS Working Papers No. 2015-05

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Sasidaran Gopalan

This paper examines the relationship between foreign bank entry and financial depth for 57 emerging and developing economies (EMDEs) over 1995-2009. Using various measures of financial depth, the paper also explores the degree to which the relationship between foreign bank entry and financial sector deepening varies by different income thresholds of EMDEs. The empirical findings suggest that while foreign banks positively further financial depth, the marginal effects of foreign bank entry diminish over time with greater levels of economic development. That is, the impact of foreign bank entry tends to become smaller as the percapita income of the country rises.

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