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The impact of banking deregulation on inbound foreign direct investment: Transaction-level evidence from the United States

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  • Kandilov, Ivan T.
  • Leblebicioğlu, Asli
  • Petkova, Neviana

Abstract

We evaluate the effects of state-level banking deregulation that resulted in improved access to cheaper local finance on foreign firms investing in the U.S. We provide direct, micro-level evidence from U.S. inbound foreign direct investment transactions showing that interstate banking, but not intrastate branching, deregulation increased the number of transactions, reduced the average transaction value, and boosted overall investment by foreign multinationals. We also show that lower cost of local credit and greater local bank competition in each state, following the interstate banking deregulation, are potential mechanisms that stimulated FDI activity. Finally, we demonstrate that after the adoption of the interstate banking deregulation, both the number and the average value of transactions increased in industries that are more dependent on external finance relative to industries that are less dependent.

Suggested Citation

  • Kandilov, Ivan T. & Leblebicioğlu, Asli & Petkova, Neviana, 2016. "The impact of banking deregulation on inbound foreign direct investment: Transaction-level evidence from the United States," Journal of International Economics, Elsevier, vol. 100(C), pages 138-159.
    • Handle: RePEc:eee:inecon:v:100:y:2016:i:c:p:138-159
    DOI: 10.1016/j.jinteco.2016.02.008
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    11. Selahattin GURIS & Irem SACAKLI SACILDI & Elif GUNEREN GENC, 2015. "Determining the Effects of Factors on FDI in Global Crisis Period," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 1-10.
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    13. Chi Zhang & Ivan T. Kandilov & Mark D. Walker, 2022. "Belt and road initiative and Chinese cross‐border mergers and acquisitions," The World Economy, Wiley Blackwell, vol. 45(6), pages 1978-1996, June.

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    More about this item

    Keywords

    Foreign direct investment; Banking deregulation; External finance dependence;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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