Discuss how the entry of foreign banks may prove growth-enhancing in a Essay

Discuss how the entry of foreign banks may prove growth-enhancing in a developing country - Essay Example This essay discusses the concept of globalization that gained increasing acceptance among countries across the world. It encourages nations and their authorities to consider themselves as a part of the international community. It urges countries to increase their contacts with the outside world and engage in various economic exchanges in the global market. Accordingly, nations have undertaken various measures to accomplish this goal. The concept of globalization has also pervaded the international financial sector. An increasing number of international banks have expressed the desire of expanding their business activities across the globe. Their preferred target of location has been the economies of the developing countries. Most of the developing nations used to operate as closed economies and were served only by the domestic indigenous banks. The operations of these domestic banks were restrictive in their scale and could cater to the financial requirements of a limited section of the population. Thus, the international banks found these economies as ideal locations for establishing their business activities. Foreign bank entry in a specific country is defined as the procedure by which international banks establish their operations in an economy. This is primarily accomplished by introducing a new branch or by setting up a subsidiary bank in the host nation. Tschoegi has observed that the current trend of globalization has also been observed in the international banking sector. ... According to the World Bank Report (200), over 50 per cent of the banking sector assets of these nations are owned by international banks. The foreign banking institutions have also expanded their business activities in the developing countries of Asia, Africa, the Middle East region and the Soviet Union. However, the rate of expansion of the banks’ operations has been comparatively slower in the second group of nations. Economists have been tempted to question why the foreign banks have found the developing economies to be suitable locations for expanding their business. Analysts have also evaluated the effects of the foreign bank entries on the developing nations. This paper has attempted to examine the microeconomic impact of the entry of international banks as reflected upon the developing nations. (Clarke, 2001, p.1-5) The Transition Efforts of Developing Countries Ever since the industrial revolution in Europe in the 1780s, countries across the world have experienced dif ferent degrees of industrialization and hence economic development. The rate of economic development of a nation depended on how effectively it adapted its existing economy to the new machine methods of industrial production. Countries which rapidly integrated these new technologies into their prevailing production processes witnessed a high rate of economic growth. Contrarily, nations which were slow to adapt to the innovative production technology experienced a much lower rate of economic progress. In this way, the rate of economic development has varied between the different countries of the world. Economists have classified the countries into three main categories based on their present level of economic development: the developed countries (DCs), the developing countries