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The Ideal Loan and the Patterns of Cross-Border Bank Lending

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Author Info

  • Joern Kleinert

    ()
    ( Karl-Franzens University of Graz)

  • Bettina Brueggemann

    ()
    (University of Frankfurt)

  • Esteban Prieto

    ()
    (University of Tuebingen)

Abstract

A typical loan offer is a differentiated product with various negotiated characteristics (maturity, amount, timing, collateral, disclosure requirements) which involve costs that go beyond the mere interest rate. Taking into account all costs, a firm chooses the cost minimizing loan offer. Based on this decision criterion, we derive the probability of a firm from country i to choose a loan contract from a bank in country j. We use this probability to derive a gravity equation for cross-border bank loans. Finally, we estimate the gravity equation based on the theoretical model controlling for the unobserved heterogeneity proposed by our theoretical model.

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Bibliographic Info

Paper provided by University of Graz, Department of Economics in its series Graz Economics Papers with number 2012-03.

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Date of creation: Sep 2012
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Handle: RePEc:grz:wpaper:2012-03

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Related research

Keywords: Product differentiation; Gravity Equation; Cross-border bank lending;

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References

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  1. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
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  8. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
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  10. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
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  14. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
  15. Claudia M. Buch, 2001. "Distance and International Banking," Kiel Working Papers 1043, Kiel Institute for the World Economy.
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Cited by:
  1. Franziska Bremus, 2013. "Cross-Border Banking, Bank Market Structures and Market Power: Theory and Cross-Country Evidence," Discussion Papers of DIW Berlin 1344, DIW Berlin, German Institute for Economic Research.

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