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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. Friederike Niepmann, 2013. "Banking across borders with heterogeneous banks," Staff Reports, Federal Reserve Bank of New York 609, Federal Reserve Bank of New York.
  2. 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.
  3. 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.
  4. Niepmann, Friederike, 2013. "Banking across borders," Discussion Papers 19/2013, Deutsche Bundesbank, Research Centre.
  5. 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.
  6. 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.
  7. 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.
  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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