Autor: Moises Claudino
This paper studies the relationship between foreign banks and private credit to the private sector extended by financial institutions in Latin America and the Caribbean from 2005 to 2013, the used econometric techniques are OLS Cross-Country regressions, Panel Regressions with fixed effects and Instrumental Variable Regressions. I also try to control for income class and for distance, as literature shows that private credit declines when foreign banks home is more distant to the host country. Results confirm that private credit does decreases with distance, but low-income countries do not seem to be negatively affected by foreign banks, which is predicted by literature. When using panel regressions with fixed effects foreign banks are negatively related to private credit but coefficients are statistically insignificant, instrumental variables regression indicate that foreign banks are highly beneficial for private credit, separating the sample on countries where foreign banks dominate and countries where domestic banks dominate confirm the results obtained in the IV regression, foreign banks are beneficial for financial development.
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