Foreign bank entry and financial development: New evidence on the cherry picking and foreign bank’s informational disadvantage phenomena in the MENA countries

Figures & data

Figure 1. The number of foreign banks as percentage of total number of banks in the MENA countries for the period between 1995 and 2014.

Table 1. Summary statistics

Variable	Mean	Median	Minimum	Maximum	Std. Dev.	Missing obs.
Bank_concentration_	75.5600	78.5893	39.3265	100.000	17.8863	95
Foreign_banks_among_total_banks	20.9375	18.0000	0.000000	71.0000	20.3653	96
GDP_per_capita_	9656.70	2546.59	481.780	62,168.8	14,108.8	17
Liquid_liabilities_to_GDP	65.7909	58.2753	8.22397	252.719	41.9685	50
Private_credit_by_deposit_money	35.6838	33.1011	1.67978	96.1080	23.0768	48
Inflation	7.51387	3.69057	−16.1173	387.311	23.8353	72
Control_of_corruption_	−0.320484	−0.395533	−1.60988	1.72285	0.717267	80
Rule_of_law	−0.295592	−0.249176	−1.92388	1.04361	0.719596	80

Table 2. Correlation coefficients, (missing values were skipped) 5% critical value (two−tailed) = 0.0981 for n = 400

	Con	F.B.	GDP	Liq	Priv	Infl	Corr	Rule
Concentration	1.0000	−0.2921	0.0578	−0.3063	−0.3392	0.1194	−0.0856	−0.1512
Foreign_banks		1.0000	−0.2605	0.3304	0.3491	−0.0994	−0.0478	0.0068
GDP_per_capita			1.0000	−0.0856	0.2146	−0.1020	0.7146	0.6451
Liquid_liabilities				1.0000	0.6895	−0.2486	0.0226	0.1386
Private_credit					1.0000	−0.2832	0.5268	0.6144
Inflation						1.0000	−0.3094	−0.3510
Corruption							1.0000	0.8867
Rule_of_law								1.0000

Table 3. Private credit and foreign bank presence in the MENA countries: OLS cross-sectional regressions

Model	Full sample			10 richest MENA countries			10 poorest MENA countries
	1	2	3	4	5	6	7	8	9
	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014
const	87.575 (12.890)***	142.344 (17.7104)***	82.634 (18.842)***	−6.703 (30.578)	118.495 (28.350)***	−93.555 (40.123)**	−129.472 (32.003)***	−124.297 (63.102)*	−101.067 (35.837)***
Foreign	0.230 (0.056)***	−0.0168 (0.093)	0.267 (0.0712)***	0.318 (0.078)***	0.099 (0.0977)	0.523 (0.093)***	0.024 (0.085)	−0.373 (0.154)**	0.202 (0.099)**
corruption_	−5.920(4.435)	15.117 (5.863)**	−14.221 (6.459)**	−3.760 (5.627)	30.662 (4.774)***	−32.204 (8.317)***	−6.065 (5.071)	−24.064 (7.873)***	2.377 (5.828)
ROL	34.158 (4.277)***	25.583 (4.784)***	39.994 (6.352)***	16.212 (6.845)**	3.416 (6.846)	34.631 (8.377)***	22.417 (4.848)***	35.061 (6.352)***	19.270 (6.562)***
log_Inf	−1.846 (1.291)	−0.924 (1.737)	−4.987 (1.987)**	0.552 (1.630)	−1.577 (1.335)	2.936 (2.896)	−4.017 (1.476)***	−2.544 (2.781)	−6.021 (1.530)***
log_GDP	−5.489 (1.294)***	−11.370 (1.972)***	−5.005 (1.794)***	7.667 (3.661)**	−7.160 (3.460)*	15.773 (4.624)***	23.812 (4.712)***	23.803 (8.970)**	18.747 (5.008)***
Concentration	−0.035 (0.074)	−0.107 (0.097)	0.0255 (0.0951)	−0.484 (0.114)***	−0.345 (0.103)***	−0.484 (0.132)***	0.128 (0.090)	0.070 (0.114)	0.258 (0.107)**
Obs	177	54	77	102	26	72	79	28	51
R^2	0.609	0.798	0.596	0.503	0.907	0.573	0.907	0.943	0.939
Adjusted R^2	0.595	0.772	0.576	0.471	0.878	0.533	0.899	0.927	0.931

Notes: This table reports the results of cross-sectional OLS regressions for the sample of the MENA countries. The dependent variable is private credit by Deposit Money Banks to GDP (%). Foreign is the ratio of the number of banks controlled by foreigners to the total number of banks in the country. Corruption is an index measuring the freedom from corruption. ROL (Role of Law) is an index measuring the restriction of the arbitrary exercise of power by subordinating it to well-defined laws. Log-Inf is the log difference in the consumer price index. Log-GDP is the log of GDP in US dollars divided by population. Concentration is the share of bank assets in the five largest banks. Standard errors are in brackets.

* Significant at 10%.

** Significant at 5%.

*** Significant at 1%.

Table 4. Liquid liabilities and foreign bank presence in the MENA countries: OLS cross-sectional regressions

Model	Full sample			10 richest MENA countries			10 poorest MENA countries
	1	2	3	4	5	6	7	8	9
	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014
const	84.958 (27.176)***	144.085 ( 27.025)***	49.311 (42.612)	−210.498 (59.550)***	5.989 (58.200)	−333.618 (86.213)***	−273.007 (40.375)***	−215.957 (84.588)**	−198.827 (41.534)***
Foreign	0.452 (0.118)***	0.032 ( 0.142)	0.598 (0.161)***	0.646 (0.153)***	0.298 (0.200)	0.929 (0.201)***	−0.223 (0.107)**	−0.895 (0.206)***	−0.014 (0.115)
corruption_	−24.960 (9.350)***	−5.314 ( 8.947)	−32.943 (14.609)**	−4.352 (10.960)	18.243 (9.800)*	−35.939 (17.872)**	−11.127 (6.397)*	−15.236 (10.554)	−16.561 (6.754)**
ROL	39.601 (9.018)***	47.722 ( 7.301)***	35.919 (14.366)**	−38.830 (13.330)***	−8.576 (14.056)	−24.630 (18.001)	31.224 (6.117)***	36.347 (8.516)***	45.508 (7.605)***
log_Inf	−5.403 (2.723)**	− 0.497 ( 2.651)	−7.086 (4.495)	−2.570 (3.176)	−2.549 (2.741)	3.791 (6.223)	0.589 (1.863)	0.555 (3.728)	−3.100 (1.774)*
log_GDP	−3.788 (2.728)	− 12.105 ( 3.010)***	0.627 (4.058)	34.769 (7.131)***	4.386 (7.103)	47.754 (9.936)***	49.961 (5.945)***	44.034 (12.025)***	38.410 (5.804)***
Concentration	0.071 (0.157)	0.261 ( 0.148)*	−0.008 (0.215)	−0.869 (0.222)***	0.018 (0.211)	−1.112 (0.284)***	−0.068 (0.114)	−0.136 (0.153)	0.110 (0.125)
Obs	177	54	123	98	26	72	79	28	51
R^2	0.257	0.693	0.229	0.272	0.400	0.379	0.930	0.947	0.964
Adjusted R^2	0.230	0.654	0.189	0.224	0.210	0.321	0.925	0.932	0.959

Notes: This table reports the results of cross-sectional OLS regressions for the sample of the MENA countries. The dependent variable is liquid liabilities to GDP (%). Foreign is the ratio of the number of banks controlled by foreigners to the total number of banks in the country. Corruption is an index measuring the freedom from corruption. ROL (Role of Law) is an index measuring the restriction of the arbitrary exercise of power by subordinating it to well-defined laws. Log-Inf is the log difference in the consumer price index. Log-GDP is the log of GDP in US dollars divided by population. Concentration is the share of bank assets in the five largest banks. Standard errors are in brackets.

* Significant at 10%.

** Significant at 5%.

*** Significant at 1%.

Table 5. Private credit and foreign bank presence in the MENA countries: GMM panel estimation

Model	Full sample			10 richest MENA countries			10 poorest MENA countries
	1	2	3	4	5	6	7	8	9
	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014
Foreign	0.438 (0.055)***	0.280 (0.176)	0.469 (0.061)***	0.338 (0.056)***	0.400 (0.105)***	0.384 (0.077)***	−0.213 (0.131)	−2.430 (8.189)	−0.024 (0.231)
corruption_	−16.465 (6.120)***	−2.489 (13.943)	−22.811 (7.125)***	−9.760 (6.374)	29.562 (7.968)***	−22.040 (7.168)***	−10.019 (12.197)	−36.227 (84.020)	−23.629 (21.804)
ROL	36.893 (6.164)***	25.167 (14.624)	42.811 (7.140)***	26.786 (7.103)***	−14.592 (8.795)	40.511 (8.630)***	37.921 (9.314)***	29.022 (78.722)	49.191 (16.395)***
Inf	0.200 (0.416)	1.310 (1.347)	−0.087 (0.486)	0.653 (0.947)	−2.500 (1.467)	0.481 (1.787)	−1.128 (0.443)**	−8.158 (26.608)	−1.554 (0.704)**
log_GDP	1.075 (0.832)	2.140 (2.568)	1.009 (0.942)	6.052 (1.075)***	9.219 (1.426)***	4.887 (1.717)***	3.576 (2.222)	28.874 (92.163)	6.554 (3.650)*
Concentration	0.231 (0.094)**	0.103 (0.305)	0.246 (0.105)**	−0.432 (0.115)***	−0.785 (0.18)***	−0.296 (0.135)**	0.365 (0.175)**	−1.046 (5.226)	0.216 (0.272)
Obs	149	25	110	88	15	65	61	10	45
R^2	0.533	0.460	0.572	0.539	0.903	0.565	0.888	0.580	0.839
Adjusted R^2	0.517	0.318	0.552	0.511	0.850	0.529	0.878	0.056	0.819

Notes: This table reports the results of panel regressions for the sample of the MENA countries. It presents results of estimation using GMM estimator with lags of control variables for instruments. The dependent variable is private credit by Deposit Money Banks to GDP (%). Foreign is the ratio of the number of banks controlled by foreigners to the total number of banks in the country. Corruption is an index measuring the freedom from corruption. ROL (Role of Law) is an index measuring the restriction of the arbitrary exercise of power by subordinating it to well-defined laws. Log-Inf is the log difference in the consumer price index. Log-GDP is the log of GDP in US dollars divided by population. Concentration is the share of bank assets in the five largest banks. Standard errors are in brackets.

* Significant at 10%.

** Significant at 5%.

*** Significant at 1%.

Table 6. Liquid liabilities and foreign bank presence in the MENA countries: GMM panel estimation

Model	Full sample			10 richest MENA countries			10 poorest MENA countries
	1	2	3	4	5	6	7	8	9
	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014	1995–2014	1995–2004	2005–2014
Foreign	0.663 (0.097)***	0.429 (0.258)	0.692 (0.116)***	0.365 (0.091)***	0.234 (0.159)	0.363 (0.144)**	−0.057 (0.160)	−3.188 (9.760)	−0.200 (0.247)
corruption_	−40.638 (10.837)***	−35.640 (20.427)*	−40.666 (13,391)***	0.212 (10.397)	10.611 (12.029)	−3.052 (12.860)	−34.020 (14.927)**	−28.841 (100.138)	−61.659 (23.340)**
ROL	49.632 (10.915)***	61.544 (21.423)***	45.032 (13.419)***	−8.837 (11.587)	−12.661 (13.277)	−8.541 (16.080)	77.122 (11.398)***	39.667 (93.823)	100.659 (17.550)***
Inf	−0.597 (0.738)	1.613 (1.974)	−1.087 (0.914)	1.101 (1.546)	2.593 (2.215)	0.840 (3.366)	−1.159 (0.543)**	−8.533 (31.712)	−1.838 (0.753)**
log_GDP	0.779 (1.473)	−1.002 (3.762)	1.790 (1.770)	7.473 (1.754)***	8.472 (2.153)***	7.188 (3.346)**	8.646 (2.720)***	39.412 (109.843)	12.474 (3.907)***
Concentration	0.485 (0.168)***	0.690 (0.447)*	0.394 (0.198)**	−0.368 (0.188)*	−0.525 (0.271)*	−0.295 (0.254)	0.401 (0.214)*	−1.313 (6.229)	0.187 (0.292)
Obs	149	25	110	88	15	65	61	10	45
R^2	0.263	0.345	0.253	0.165	0.605	0.148	0.927	0.744	0.919
Adjusted R^2	0.237	0.173	0.218	0.114	0.386	0.075	0.920	0.425	0.908

Notes: This table reports the results of panel regressions for the sample of the MENA countries. It presents results of estimation using GMM estimator with lags of control variables for instruments. The dependent variable is liquid liabilities to GDP (%). Foreign is the ratio of the number of banks controlled by foreigners to the total number of banks in the country. Corruption is an index measuring the freedom from corruption. ROL (Role of Law) is an index measuring the restriction of the arbitrary exercise of power by subordinating it to well-defined laws. Log-Inf is the log difference in the consumer price index. Log-GDP is the log of GDP in US dollars divided by population. Concentration is the share of bank assets in the five largest banks. Standard errors are in brackets.

* Significant at 10%.

** Significant at 5%.

*** Significant at 1%.