Foreign Direct Investment and Consumer Finance Companies: What Are the Determinants?

Abstract

In the context of the globalization of the financial sector, notably of the non-banking sector within the European Union member states of the last decades, the assets of the non-bank sector have increased in the last years considerably. Taking into account that the regulatory requirements for consumer finance companies are more permissive than for banking financial institutions and that the financials of the sector are not available for almost half of the sector this paper tries to explain the main determinants of foreign direct investments in consumer finance companies for a panel of European Union member states over the period 2006-2013. My approach is using the panel methodology but testing different panel specifications in order to choose the model that will better explain FDI – fixed effects. Findings show that the percentage of people with internet connection, the quality of the regulatory environment, the trade to GDP, the cost of business start-up procedures, the time required to start a business, the government final spending and the labour costs are the major determinants of foreign investments in consumer finance companies.
 Keywords: consumer finance companies, foreign direct investment, non-bank financial sector, multinationals, panel data.