The short-term effects of foreign bank entry on domestic bank behaviour: Does economic development matter?

B. W. Lensink*, C. L. M. Hermes

*Corresponding author for this work

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121 Citations (Scopus)


This paper investigates the short-term effects of foreign bank entry on the behaviour of the domestic banking sector. We hypothesise that these effects are dependent on the level of economic development of the host country. Our investigation shows that at lower levels of economic development foreign bank entry is generally associated with higher costs and margins for domestic banks. At higher levels of economic development the effects appear to be less clear: foreign bank entry is either associated with a fall of costs, profits and margins of domestic banks, or is not associated with changes in these domestic bank variables. (C) 2003 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)553-568
Number of pages16
JournalJournal of Banking & Finance
Issue number3
Publication statusPublished - Mar-2004


  • foreign banking
  • domestic financial sector
  • economic development

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