infonet-economy

We analyze the impact of foreign bank presence on foreign direct investment in China. Our estimates demonstrate that foreign direct investment across regions in China is increasing in the existing network of regional branches of foreign banks, which itself is driven (and therefore instrumented) by the timing of the regional phasing out of the local limits for foreign banks on local currency business. This effect of foreign bank presence is particularly strong for foreign direct investment in those sectors in the region when banks are locally present that come from source countries where these specific sectors are importantly represented.