Financial Liberalization and Foreign Bank Entry in Emerging and Developing Economies: What Does the Literature Tell Us?

An important feature of international financial liberalization in several emerging market and developing economies (EMDEs) over the last two decades has been the rising foreign bank participation in their domestic banking systems. While the term financial liberalization has been widely used in literature, it is often not carefully defined. What is the relationship between foreign bank entry and financial liberalization? This paper lays out a simple framework to understand the different components of financial liberalization, its relationship with domestic deregulation as well as foreign bank entry and also surveys the trends and implications of foreign bank entry in EMDEs.