Foreign Bank Entry and Entrepreneurship

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Thorsten Beck (Cass Business School, London)

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IWH conference room

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Thorsten Beck joined the Faculty of Finance in September 2013 as professor of banking and finance. Since 2008 he has been professor of economics at Tilburg University in the Netherlands and was the founding chair of the European Banking Center from 2008 to 2013. He is also a research fellow of the Centre for Economic Policy Research (CEPR). Previously he worked in the research department of the World Bank and has also worked as consultant for – among others - the IMF, the European Commission, and the German Development Corporation.

Programm

Using unique firm-level data across 48 developing countries and 36 manufacturing industries, we gauge the importance of international banks’ presence for promoting entrepreneurship, as measured by business formation. Our results suggest that greater foreign bank presence fosters greater business formation, especially in industries with higher needs for external finance. The effect is particularly strong when the foreign banks present are headquartered in other developing countries. We also investigate how an industry’s use of relatively standardized inputs affects the advantages it reaps from foreign bank entry. In developing countries, the effect on business formation of foreign bank presence is greater in industries with more standardized inputs, especially when the foreign banks present are from other developing countries.