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Abstract This study contributes to income equality (IE) literature by examining four important issues. First, the study examines the effects of foreign bank presence (FBP) on IE. Second, the paper identifies the minimum threshold level of FBP which can lead to IE. Third, the effect of economic freedom on IE was investigated. Fourth, the paper determines whether economic freedom interacts with FBP to minimise IE. The findings are based on macro data for 33 African countries from 1995 to 2020. The findings from the two-stage system generalised method of moment indicate that unconditionally, FBP reduces income inequality. Also, results from the threshold effect reveal that whilst FBP reduces income inequality, if it exceeds 52%, it may contribute to it. Additionally, the study reveals that economic freedom dampens IIE. Furthermore, economic freedom conditions FBP to reduce IE. Based on these findings, policymakers are advised to exercise caution in attracting foreign banks and to promote local financial institutions. Policymakers are also advised to implement policies to promote economic freedom.

This study contributes to income equality (IE) literature by examining four important issues. First, the study examines the effects of foreign bank presence (FBP) on IE. Second, the paper identifies the minimum threshold level of FBP which can lead to IE. Third, the effect of economic freedom on IE was investigated. Fourth, the paper determines whether economic freedom interacts with FBP to minimise IE. The findings are based on macro data for 33 African countries from 1995 to 2020. The findings from the two-stage system generalised method of moment indicate that unconditionally, FBP reduces income inequality. Also, results from the threshold effect reveal that whilst FBP reduces income inequality, if it exceeds 52%, it may contribute to it. Additionally, the study reveals that economic freedom dampens IIE. Furthermore, economic freedom conditions FBP to reduce IE. Based on these findings, policymakers are advised to exercise caution in attracting foreign banks and to promote local financial institutions. Policymakers are also advised to implement policies to promote economic freedom. [ABSTRACT FROM AUTHOR]

While extant studies typically measure foreign bank presence only considering the percentage share of foreign-owned banks among the banking industry of one country, there comes one interesting question: whether the impact of the micro-level foreign presence, i.e. foreign investment in domestic banks, may be similar? Drawing on theoretical arguments from FDI spillover and corporate governance, this paper hypothesizes that macro-level foreign bank presence mainly threatens domestic banks' performance due to increased competition, whereas micro-level foreign presence enhances banks' efficiency. Empirical analyses based on a cross-country bank-level dataset from 2002 to 2020 support these hypotheses. The mechanism analysis shows that macro-level foreign presence hampers domestic banks' outputs, while micro-level foreign presence helps reduce banks' input prices. Furthermore, the impact of macro-level foreign presence is more pronounced in less developed economies, while the positive impact of micro-level foreign presence is significant in more developed economies or those with low banking concentration. Our findings enrich the literature on foreign bank presence by considering micro-level foreign investment in domestic banks, and expand the FDI and corporate governance literature by incorporating the banking context. [Display omitted] • Macro-level foreign presence (foreign bank presence in the banking industry) reduces domestic bank efficiency. • Micro-level foreign presence (foreign ownership in domestic banks) boosts bank efficiency. • Macro-level foreign presence hampers bank outputs, while micro-level foreign presence lowers bank input prices. • The impact of macro-level foreign presence is more pronounced in less developed economies. • The impact of micro-level foreign presence is more evident in developed economies or less concentrated banking sectors. [ABSTRACT FROM AUTHOR]