Foreign Support, Local Lending and Economic Growth

AbstractInternational exposures to developing banking sectors have often been seen as supporting local lending and economic growth. On the other hand, high-growth economies may attract speculative funds, leading to further cyclicality. We study the inter-linkages between foreign support, local lending and economic growth in Romania starting with 2007. Results confirm the strong dependence of local lending on foreign funds, but also show that foreign support closely follows previous lending variations. In the context of the financial crisis, we argue that the impact of lending on economic growth is significantly lower, while bank lending benefits from developments of the local economy