FOREIGN BANKS’ PRESENCE, BANKING SECTOR OPENNESS AND NEW FIRM CREATION IN SELECTED AFRICAN COUNTRIES

Abstract

This paper analyzes the dynamic impact of foreign banks’ presence and openness of banking sector on new firm creation in a panel of African countries. The analysis is based on Panel corrected standard error estimate (PCSE) and system Generalised Method of Moment (SGMM). Using data of sixteen countries in Africa between 2006 and 2017, the results reveal that foreign banks’ presence and banking sector openness have significant positive impacts on new firm creation. The study also examines the causality between the variables via Toda and Yamamoto approach. The results confirm a bidirectional causality between banking sector openness and new business creation. This means that there is a two-way flow between the variables. Banking sector openness drives entrepreneurial development and entrepreneurial activities also drive openness of the banking sector. This implies that foreign banking firms through their access to advanced technologies, increase the efficiency in the domestic banking sector of the economy. They grant loanable funds to domestic entrepreneurs for setting up new firms. The findings suggest that the presence of multinational banks is a blessing to African economies.

Keywords: Foreign Banks, Liberalization, Entrepreneurial Start- up.