How does banking sector globalization affect economic growth?

- Examines a panel of 138 nations spanning 1995-2013.
- Uses different frequentist methods and Bayesian analysis.
- Three different measures of banking-sector globalization lower growth.
- Banking-sector globalization also reduces private credit flows.
- Results call for reducing informational bottlenecks for foreign banks.

The present study examines the impact of banking sector globalization on economic growth for a panel of 138 nations spanning 1995-2013. Employing different econometric models, the study finds greater banking sector openness to reduce economic growth. Such finding holds in both emerging markets and low income countries, and in nations with more than 10 percent foreign banks, but not in advanced economies. The paper also finds foreign banks reduce private credit flows in host nations. This implies foreign banks face informational bottlenecks that hinder them from lending to a large majority of potential client-base in host markets.