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Title:Signals of foreign bank entry on real sector FDI and foreign trade and their impact on economic development in the New EU Member States PDF Logo
Authors:Roessl, Petra
Haiss, Peter
Issue Date:2008
Series/Report no.:Proceedings of the German Development Economics Conference, Zürich 2008 36
Abstract:Does financial sector foreign direct investment (FSFDI) trigger general capital inflows and foreign trade? Do these inflows to New EU Member States (NMS) provide positive signals (Spence, 1973) towards economic development or “crowd out” investment and trade? While the direct impact of financial deepening has received much attention (Hasan, Wachtel, Zhou, 2006; Detragiache, Tressel, Gupta, 2006), indirect effects have received less consideration. To fill this gap, we review the literature on possible links and provide descriptive data for NMS. We apply regression analysis and find coherence between FSFDI and non-financial FDI and trade in Bulgaria and Croatia, but there are various directions in which developmental repercussions can go and the impact on trade is not as significant as the effect on nonfinancial FDI. We argue that the relative impact of FSFDI, real sector FDI and trade needs to be taken into consideration in shaping economic policies conducive to economic development.
Subjects:foreign banks
economic development
foreign trade
FDI
signal theory
JEL:E44
F15
F36
G21
O11
P34
Document Type:Conference Paper
Appears in Collections:Proceedings of the German Development Economics Conference, 2008 (Zürich)

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