Consequences of The Foreign Bank Implantation in Developing Countries and Its Impact on the Local Bank Efficiency: Theoretical Analysis and Empirical Tests on International Data

Bouzidi Fathi


The objective of this paper is to study the impact of the foreign bank entry on the domestic banks performance in developing countries. Using observations of 1770 active banks in 54 developing countries during the period 1993-2001, we find some interesting and unique findings on the question. Results of empirical tests suggest that the foreign banks are more efficient than the local banks in developing countries and that contrary to what is advanced by a large part of the literature, the foreign bank entry has a rather negative impact on the local bank efficiency. This result is very interesting: it put into question International Financial Institutions’ recommendations made during last years in developing countries to encourage the foreign bank entry.

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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