6.CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCH This paper reviews the theoretical literature explaining financial FDI, as well as the empirical results on the determinants of financial FDI and its potential effects for the home country. From this review, several conclusions can be drawn. First, the theoretical literature is still scarce, in particularly a coherent macroeconomic model is absent. In addition, the existing one is too focused on the so-called “second wave” of banks’ international expansion, where information advantages and “follow the client” motives were crucial. No good theories exist yet to explain the “third wave” of bank internationalization, characterized by a surge in local operations in emerging countries through the opening up or acquisition of branches and subsidiaries. Risk diversification theories seem particularly adapted to explain this reality. Second, some empirical work has been done on the pull factors determining financial FDI but virtually none exists for push factors. The same is true for the effect of financial FDI on the home country. This is a consequence of the host country’s focus that the literature on financial FDI has had, particularly in the most recent years. Partially as a result, there is still poor knowledge of the determinants of financial FDI, and to some extent also FDI in general. The consensus is stronger for institutional factors, the host country’s income per capita, economic growth and volatility. There is also broad consensus that size matters for banks to expand abroad, as well as risk sharing and follow-the-client motivations. However, there are important factors for which no consensus emerges, such as the role of the home country’s economic cycle. In addition, more efforts would be needed to explain the differences between operating in emerging – rather than industrial – countries and between branches and subsidiaries, following Focarelli and Pozzolo’s (2001) tentative results.
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19Finally, the effects on financial FDI on the home country are virtually unknown. The empirical literature on general FDI points to potentially significant financial effects (substitution of domestic investment by outward FDI), while the effects on production, employment and the structure of the economy seem weak. In any event, exploring the likely consequences of financial FDI on the profitability and systemic risk of the home country’s financial system and the economy as a whole is becoming increasingly important as the share of banls’ foreign activities increases. This is even more so the case for countries where financial FDI has concentrated in a particular emerging region (i.e., Spain in Latin America and Austria in Central and Eastern Europe). Along these lines, it would also be interesting to compare calm periods with crisis ones to see how the effects on the home country differ.