Foreign Banks and Financial Inclusion in Emerging and Developing Economies: An Empirical Investigation

Abstract

An important dimension of the effects of foreign bank presence on financial sector development relates to that of financial inclusion. Despite its significance, the empirical literature offers little evidence on the relationship between foreign banks and financial inclusion. We examine this relationship by focusing on impact of foreign banks on both the accessibility and usage dimensions of financial inclusion for a panel of 50 emerging and developing economies over 2004-2009. Our findings show that foreign banks have a strong positive impact in furthering financial access while tending to impede the usage dimension, which is robust to alternative methodologies and definitions.