Location Decisions of Foreign Banks and Institutional Competitive Advantage
AbstractFamiliarity with working in a specific institutional environment compared to its competitors can provide a firm with a competitive advantage, making it invest in specific host countries. We examine whether this notion of institutional competitive advantage drives banks to seek out specific markets. Using detailed, bilateral data of bank ownership for a large number of countries over 1995-2006 and using a first-difference model, we find that institutional competitive advantage importantly drives banks' location decisions. Results are robust to different samples and model specifications, various econometric techniques and alternative measures of institutional quality. This finding has some policy implications, including on the increased cross-border banking among developing countries.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 172.
Date of creation: Apr 2008
Date of revision:
foreign direct investment; international banking; institutions;
Other versions of this item:
- Claessens, Stijn & Van Horen, Neeltje, 2007. "Location decisions of foreign banks and competitive advantage," Policy Research Working Paper Series 4113, The World Bank.
- D4 - Microeconomics - - Market Structure and Pricing
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-BAN-2008-04-12 (Banking)
- NEP-COM-2008-04-12 (Industrial Competition)
- NEP-CSE-2008-04-12 (Economics of Strategic Management)
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