Location decisions of foreign banks and competitive advantage
AbstractWhile institutional differences have been found to affect country growth patterns, much has remained unexplained, including how economic actors"overcome"institutional weaknesses and how internationalization helps or hinders development. Banking is an institutionally-intensive activity and the location decision of foreign banks provides a good test of how institutional differences are dealt with and how they may affect economic choices. Specifically, the authors examine whether banks seek out those markets where institutional familiarity provides them with a competitive advantage over other foreign competitor banks. Using bilateral data on banking sector foreign direct investment in all developing countries and controlling for other factors, they find that competitive advantage is an important factor in driving foreign banks'location decisions. The findings suggest that high institutional quality is not necessarily a prerequisite to attract foreign direct investment in banking and that there are specific benefits, as well as risks, to international financial integration between developing countries.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4113.
Date of creation: 01 Jan 2007
Date of revision:
Banks&Banking Reform; Foreign Direct Investment; Country Strategy&Performance; Corporate Law; Economic Theory&Research;
Other versions of this item:
- Stijn Claessens & Neeltje van Horen, 2008. "Location Decisions of Foreign Banks and Institutional Competitive Advantage," DNB Working Papers 172, Netherlands Central Bank, Research Department.
- 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-2007-01-28 (All new papers)
- NEP-BAN-2007-01-28 (Banking)
- NEP-CSE-2007-01-28 (Economics of Strategic Management)
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