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Understanding the Impacts of Financial Globalization and Technological Innovation

July 3, 2014


Three original research papers explored the effect of foreign bank ownership on bank lending and how mobile banking services are emerging in countries at different levels of development. The papers were presented in the Bank and in seminars abroad. All papers were published as World Bank Research Policy papers and submitted to external journals for publication. One of the papers was selected to be presented at the World Congress of the International Economics Association as well as at the conference of the International Banking, Economics and Finance Association.


Following the global economic crisis, economists undertook extensive research on the different patterns of lending behavior by banks and the factors that explained them, with a particular emphasis on ownership. The results qualified conventional wisdom about the benefits of foreign bank ownership. Also, mobile banking services have been a great innovation with the potential of facilitating payments and savings services to millions of people. However, no previously published paper had established an empirical correlation between a country’s regulatory framework and the development of mobile banking services. Valuable lessons could be learned from countries where mobile banking services have developed in very different environments.  


The Cross-regional Research on Impacts of Financial Globalization and Technological Innovation project aimed to explain what made foreign banks behave differently from domestic banks during the crisis. The project aimed to expand knowledge about the impacts of financial globalization and technological innovation on financial services. 

A Bank expert, with the assistance of three consultants and a Bank Senior Researcher, performed cross-regional research and wrote three papers on the topics of financial globalization and technological innovation. The researchers subsequently disseminated the papers at brown bag lunches in the Bank and seminars at the Central Bank of Korea, at an event sponsored by the Center for Latin American Monetary Studies (CEMLA) in Mexico City, and at Murcia University, in Spain. All papers were published as Policy Research Working Papers, one of them additionally published as a Bank of Korea working paper, and submitted to external journals for publication. 


The activity resulted in three original research papers described below. These three papers broaden our understanding of the factors that affect bank lending and the development of mobile banking, allowing the Bank and others to adjust policy advice regarding regulatory frameworks to reduce and mitigate the impacts of financial crises and to facilitate the use of banking services, especially among the poor.

The paper “Dissecting Foreign Bank Lending Behavior During the 2008-2009 Crisis” analyzed the lending behavior of foreign-owned banks during the recent global crisis. Using bank-level panel data for countries in Central and Eastern Europe, East Asia, and Latin America, the paper found robust evidence that foreign banks curtailed the growth of credit relative to other banks, independent of the host region. Banks from the United States reduced loan growth less than other parent banks. Neither the global nor the regional reach of parent banks influenced the lending growth of foreign affiliates. However, the funding structure of foreign bank affiliates and the capitalization of parent banks do help explain the lending behavior of foreign banks during the global crisis.

The paper “Mobile Money Services Development: The cases of Korea and Uganda” compares the development of mobile banking services in two very different countries and provides some insight into the factors that support the development of mobile banking services. One is that the development of mobile banking services requires a vibrant and competitive telecommunications sector. Another key ingredient at the country level is a mobile banking enabling legislative and regulatory environment.

The paper “What Regulatory Frameworks are More Conducive to Mobile Banking? Empirical Evidence from Findex Data” uses data on mobile banking usage for 37,000 individuals in 35 countries to explore the empirical relationship between regulatory frameworks and mobile banking usage. Overall, enabling legal and regulatory frameworks are strongly associated with higher usage, both for the banked and unbanked. While supporting frameworks do not necessarily require a detailed regulation of mobile banking industries, some elements appear key; the legal framework should allow (or at least not explicitly forbid) non-bank financial institutions to issue money and the use of banking agents or correspondents. An electronic signature law will help support the development of retail payment services.

Bank Group Contribution

This engagement was funded through a US$230,000 grant through the Korean trust fund. The Bank supported the research by the staff members and managed the funds provided by the Korean Government.  


The Korean Government was a key partner and made this engagement possible through their grant financing. The Central Bank of Korea also sponsored a presentation of the papers in Seoul. The Center for Latin American Monetary Studies (CEMLA) sponsored a presentation in Mexico City. The University of Murcia in Spain also sponsored a presentation.

Moving Forward 

One of the papers will be presented at the forthcoming World Congress of the International Economic Association (June 6-10, 2014) and at the forthcoming conference of the International Banking, Economics and Finance Association (June 27-30, 2014). The results were also communicated to the Finance and Private-Sector Development (FPD) Financial Inclusion and Financial Systems practice to use as appropriate in the context of other Bank engagements.


Beneficiaries include: 

  • Government officials and those working in the financial sector in the Bank’s client countries will benefit through knowledge transfer that will enable them to design and implement better interventions.
  • Entrepreneurs and private citizens will benefit through increased access to credit and mobile banking services and improved resilience of their economies to financial crises.
  • Development experts and others working on the topics of financial inclusion and financial systems will benefit through increased understanding of financial globalization and the impacts of technological innovation.