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

Ivan Kandilov, Asli Leblebicioglu () and Neviana Petkova

Journal of International Economics, 2016, vol. 100, issue C, 138-159

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.

Keywords: Foreign direct investment; Banking deregulation; External finance dependence (search for similar items in EconPapers)
JEL-codes: F21 F23 F36 G21 G28 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:100:y:2016:i:c:p:138-159

DOI: 10.1016/j.jinteco.2016.02.008

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