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Major Points of the Article
Governments in the first world, as well as Third world countries, need better banking regulations though the latter, in addition, need other financial reforms and improvements. The governments in the developing need to build capacity for putting imported capital safely to work as most of them lack this and do more before openness to capital can be efficient. Top most on the list need to be eradicating or minimising corruption as it specifically inhibits inflows of FDI, which is the safest and most industrious form of capital inflow. According to IMF publication, corruption regardless of the measurement method discourages inward FDI to an extent it supersedes corporate taxes in this. Corruption can be reduced using measures such as explicit restrictions on connected lending, use of advanced accounting standards in addition to better disclosure of relevant financial information (The Economist, 2003).
There are many forms of FDI, and foreign ownership of banks is just one of them. This offers benefits to the host country, which are financial sector comparable of FDI including advanced technology, better management skills as well as bringing completion with domestic firms. It also helps in the fight against corruption as the foreign banks care about their reputation globally. Banking sector FDI additionally and arguably importantly enhances diversification that help mitigates risk. However, there are also disadvantages that come with Banking sector FDI majorly from state-owned banks including government having to shelter them from competition increasing operational costs (The Economist, 2003).
The banking sector if well regulated will be able to tackle the problem of financial crisis. I agree with the article that the developing countries need to come up with more regulations to ensure efficiency in the sector and particular to deal with perennial corruption problem. The article correctly identifies the problem of state-owned banking being shielded from competition but fails to come up with a particular possible solution to the issue. The response to this is too general, and the paper needed to have been more specific. The paper also remotely points the relationship between banking sector FDI and other forms of FDI, and I fell it should have gone a bit to details to allow a better understanding.
The economist (2003). Ship Building. Retrieved from http://www.economist.com/node/1730449
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