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Bank internationalization and trade: What comes first?

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  • Giovanni Ferri

    ()
    (Universit… di Bari)

  • Alberto Franco Pozzolo

    ()
    (University of Molise, Centro Studi Luca d'Agliano)

Abstract

We study the dynamic nexus that changes in foreign bank penetration have with changes in trade and FDI between some selected OECD countries and Central and Eastern Europe countries (CEECs). Following the literature, we contemplate the possibility that such a nexus might differ depending on whether foreign bank entry materializes through the opening of branches or by acquiring local subsidiaries. The question that we try to answer is whether bank internationalization led or followed the increase in trade and manufacturing FDI. Using data on the changes in the bilateral linkages between OECD origin countries and CEECs target countries between 1995 and 2002, we find only one strong link, going from the share of bilateral trade over total trade from the country of origin, which we define a "push factor", to the change in the presence of foreign branches. The link from trade to bank acquisition of foreign subsidiaries is instead much weaker. In addition, we find some evidence that the share of bilateral trade over total trade with the target country, which we define a "pull factor", affects bank internationalization through the acquisition of subsidiaries, but not through the opening of branches.

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Bibliographic Info

Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 11.

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Length: 26
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:anc:wmofir:11

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  1. Luca Papi & Debora Revoltella, 1999. "Foreign Direct Investment in the Banking Sector: A Transitional Economy Perspective," Development Working Papers 133, Centro Studi Luca d\'Agliano, University of Milano.
  2. Marc Ruhr & Michael Ryan, 2005. "“Following” or “attracting” the customer? Japanese Banking FDI in Europe," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 405-422, December.
  3. Daniel E. Nolle & Rama Seth, 1996. "Do banks follow their customers abroad?," Research Paper 9620, Federal Reserve Bank of New York.
  4. Magri, Silvia & Mori, Alessandra & Rossi, Paola, 2005. "The entry and the activity level of foreign banks in Italy: An analysis of the determinants," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1295-1310, May.
  5. Salvatore Baldone & Fabio Sdogati & Lucia Tajoli, 1999. "Patterns and Determinants of International Fragmentation of Production. Evidence from Outward Processing Trade between the EU and the Countries of Central-Eastern Europe," Development Working Papers 134, Centro Studi Luca d\'Agliano, University of Milano.
  6. Ball, Clifford A. & Tschoegl, Adrian E., 1982. "The Decision to Establish a Foreign Bank Branch or Subsidiary: An Application of Binary Classification Procedures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(03), pages 411-424, September.
  7. Yamori, Nobuyoshi, 1998. "A note on the location choice of multinational banks: The case of Japanese financial institutions," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 109-120, January.
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