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Article
What Drives Foreign Banks to South-East Europe?
Liviu Voinea, Flaviu Mihaescu
ABSTRACT. This paper attempts to find explanatory variables for foreign banks activity in South East Europe (SEE) and Central and Eastern Europe (CEE), mainly among three categories of factors: FDI, bilateral trade, and EU policies. As a proxy for bilateral banking activity, we use the consolidated foreign claims of reporting banks between source and recipient countries. Our sample includes 12 source countries (of which 10 are EU members) and 16 recipient countries (from SEE, CEE and former Soviet Union), and it covers the 1995-2004 period. We find that bilateral trade and the interest rate differential are significant and bear the expected sign, which means that foreign banks follow the customer and exploit profit opportunities.
KEYWORDS: banking, foreign direct investments, trade, EU policies, South East Europe.
JEL classification: F14, F21, G21, N20, O19.