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Margins of international banking: Is there a productivity pecking order in banking, too?


Buch, Claudia M; Koch, Cathérine; Koetter, Michael (2009). Margins of international banking: Is there a productivity pecking order in banking, too? Series 2: Banking and Financial Studies 12/2009, Deutsche Bundesbank.

Abstract

Modern trade theory emphasizes firm-level productivity differentials to explain
the cross-border activities of non-financial firms. This study tests whether a
productivity pecking order also determines international banking activities. Using
a novel dataset that contains all German banks’ international activities, we
estimate the ordered probability of a presence abroad (extensive margin) and the
volume of international assets (intensive margin). Methodologically, we enrich the
conventional Heckman selection model to account for the self-selection of banks
into different modes of foreign activities using an ordered probit. Four main
findings emerge. First, similar to results for non-financial firms, a productivity
pecking order drives bank internationalization. Second, only a few non-financial
firms engage in international trade, but many banks hold international assets, and
only a few large banks engage in foreign direct investment. Third, in addition to
productivity, risk factors matter for international banking. Fourth, gravity-type
variables have an important impact on international banking activities.

Abstract

Modern trade theory emphasizes firm-level productivity differentials to explain
the cross-border activities of non-financial firms. This study tests whether a
productivity pecking order also determines international banking activities. Using
a novel dataset that contains all German banks’ international activities, we
estimate the ordered probability of a presence abroad (extensive margin) and the
volume of international assets (intensive margin). Methodologically, we enrich the
conventional Heckman selection model to account for the self-selection of banks
into different modes of foreign activities using an ordered probit. Four main
findings emerge. First, similar to results for non-financial firms, a productivity
pecking order drives bank internationalization. Second, only a few non-financial
firms engage in international trade, but many banks hold international assets, and
only a few large banks engage in foreign direct investment. Third, in addition to
productivity, risk factors matter for international banking. Fourth, gravity-type
variables have an important impact on international banking activities.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2009
Deposited On:04 Jan 2012 10:34
Last Modified:07 Dec 2017 11:06
Series Name:Series 2: Banking and Financial Studies
Number of Pages:36
Free access at:Official URL. An embargo period may apply.
Official URL:http://www.bundesbank.de/download/bankenaufsicht/dkp/200912dkp_b_.pdf

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