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Margins of international banking: is there a productivity pecking order in banking, too?

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  • Buch, Claudia M.
  • Koch, Cathérine Tahmee
  • Koetter, Michael

Abstract

Modern trade theory emphasizes firm-level productivity differentials to explain the cross-border activities of non-financial firms. This study tests whether a productivity pecking order also determines international banking activities. Using a novel dataset that contains all German banks' international activities, we estimate the ordered probability of a presence abroad (extensive margin) and the volume of international assets (intensive margin). Methodologically, we enrich the conventional Heckman selection model to account for the self-selection of banks into different modes of foreign activities using an ordered probit. Four main findings emerge. First, similar to results for non-financial firms, a productivity pecking order drives bank internationalization. Second, only a few non-financial firms engage in international trade, but many banks hold nternational assets, and only a few large banks engage in foreign direct investment. Third, in addition to productivity, risk factors matter for international banking. Fourth, gravity-type variables have an important impact on international banking activities. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2009,12.

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Date of creation: 2009
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Handle: RePEc:zbw:bubdp2:200912

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Keywords: International banking; extensive and intensive margin; productivity pecking order; ordered probit; selection models;

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Citations

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Cited by:
  1. Niepmann, Friederike, 2013. "Banking across borders," Discussion Papers 19/2013, Deutsche Bundesbank, Research Centre.
  2. Tomas Adam & Sona Benecka & Ivo Jansky, 2012. "Time-Varying Betas of Banking Sectors," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(6), pages 485-504, December.
  3. Buch, Claudia M. & Koch, Cathérine Tahmee & Koetter, Michael, 2011. "Crises, rescues, and policy transmission through international banks," Discussion Paper Series 1: Economic Studies 2011,15, Deutsche Bundesbank, Research Centre.
  4. Christian Wildmann, 2011. "What drives portfolio investments of German banks in emerging capital markets?," Financial Markets and Portfolio Management, Springer, Springer, vol. 25(2), pages 197-231, June.
  5. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports, Federal Reserve Bank of New York 609, Federal Reserve Bank of New York.
  6. Frey, Rainer & Düwel, Cornelia, 2013. "Competition between foreign affiliates: Multinational banks internal funding in the crisis," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80013, Verein für Socialpolitik / German Economic Association.
  7. Düwel, Cornelia & Frey, Rainer, 2012. "Competition for internal funds within multinational banks: Foreign affiliate lending in the crisis," Discussion Papers 19/2012, Deutsche Bundesbank, Research Centre.
  8. Düwel, Cornelia & Frey, Rainer & Lipponer, Alexander, 2011. "Cross-border bank lending, risk aversion and the financial crisis," Discussion Paper Series 1: Economic Studies 2011,29, Deutsche Bundesbank, Research Centre.

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