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Did the world settle its debts through the branches of multinational banks? Evidence from the 1930s

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  • Laura Panza
  • David Merrett

Abstract

The motivation for this paper is to discover the arrangements made by banks to settle the world’s financial payments in the 1930s. Drawing from transaction cost theory we show that correspondent banking relationships were more important and widespread than multinational banks’ branches. The argument is then tested empirically by a gravity model using an instrumental Poisson pseudomaximum likelihood estimation strategy. We find that the strength of bilateral trade, the presence of financial centres, colonial linkages and the size of the financial sector in host countries drove the choice between branches and correspondents.

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  • Laura Panza & David Merrett, 2014. "Did the world settle its debts through the branches of multinational banks? Evidence from the 1930s," CEH Discussion Papers 030, Centre for Economic History, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:hpaper:030
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    File URL: https://cbe.anu.edu.au/researchpapers/CEH/WP201409.pdf
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