IDEAS home Printed from https://ideas.repec.org/a/ijc/ijcjou/y2006q2a5.html
   My bibliography  Save this article

Clustering or Competition? The Foreign Investment Behavior of German Banks

Author

Listed:
  • Claudia M. Buch

    (University of Tübingen and Deutsche Bundesbank)

  • Alexander Lipponer

    (University of Tübingen and Deutsche Bundesbank)

Abstract

Banks often concentrate their foreign direct investment (FDI) in certain countries. This clustering of activities could reflect either the attractiveness of a particular country or agglomeration effects. To find out which of the two phenomena dominates, we need to control for country-specific factors. We use new bank-level data on German banks’ FDI for the 1996 - 2003 period.We test whether the presence of other banks has a positive impact on the entry of new banks. Once we control for the attractiveness of a country through fixed effects, the negative impact of competition dominates. Hence, pure clustering effects are rather unimportant.

Suggested Citation

  • Claudia M. Buch & Alexander Lipponer, 2006. "Clustering or Competition? The Foreign Investment Behavior of German Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    • Handle: RePEc:ijc:ijcjou:y:2006:q:2:a:5
    as

    Download full text from publisher

    File URL: http://www.ijcb.org/journal/ijcb06q2a5.htm
    Download Restriction: no
    File URL: http://www.ijcb.org/journal/ijcb06q2a5.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Barron, John M & Valev, Neven T, 2000. "International Lending by U.S. Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 357-381, August.
    2. Frank Barry & Holger Görg & Eric Strobl, 2004. "Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 583-600, September.
    3. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    4. Sushil Bikhchandani & Sunil Sharma, 2001. "Herd Behavior in Financial Markets," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1-1.
    5. Daniel E. Nolle & Rama Seth, 1996. "Do banks follow their customers abroad?," Research Paper 9620, Federal Reserve Bank of New York.
    6. Barth, James R.*Caprio,Gerard*Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
    7. Berger, Allen N. & Dai, Qinglei & Ongena, Steven & Smith, David C., 2003. "To what extent will the banking industry be globalized? A study of bank nationality and reach in 20 European nations," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 383-415, March.
    8. Buch, Claudia M. & DeLong, Gayle, 2004. "Cross-border bank mergers: What lures the rare animal?," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2077-2102, September.
    9. Angela E. Chang & Shubham Chaudhuri & Jith Jayaratne, 1997. "Rational herding and the spatial clustering of bank branches: an empirical analysis," Research Paper 9724, Federal Reserve Bank of New York.
    10. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
    11. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
    12. Peter Egger, 2002. "An Econometric View on the Estimation of Gravity Models and the Calculation of Trade Potentials," The World Economy, Wiley Blackwell, vol. 25(2), pages 297-312, February.
    13. repec:wbk:wbpubs:12425 is not listed on IDEAS
    14. repec:hal:wpspec:info:hdl:2441/10192 is not listed on IDEAS
    15. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
    16. Focarelli, Dario & Pozzolo, Alberto Franco, 2001. "The patterns of cross-border bank mergers and shareholdings in OECD countries," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2305-2337, December.
    17. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Firms in the European Union," Sciences Po publications info:hdl:2441/10192, Sciences Po.
    18. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    19. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    20. Buch, Claudia M. & Lipponer, Alexander, 2004. "FDI versus cross-border financial services: The globalisation of German banks," Discussion Paper Series 1: Economic Studies 2004,05, Deutsche Bundesbank.
    21. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
    22. World Bank, 2005. "World Development Indicators 2005," World Bank Publications - Books, The World Bank Group, number 12426, December.
    23. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joaquím Cuevas & Pablo Martín-Aceña & María Ángeles Pons, 2018. "The roots of Spanish banking internationalisation: BBVA and Santander," Documentos de Trabajo (DT-AEHE) 1809, Asociación Española de Historia Económica.
    2. Caterina Giannetti & Nicola Jentzsch & Giancarlo Spagnolo, 2010. "Information Sharing and Cross-border Entry in European Banking," CEIS Research Paper 178, Tor Vergata University, CEIS, revised 21 Dec 2010.
    3. Havrylchyk, Olena & Jurzyk, Emilia, 2011. "Inherited or earned? Performance of foreign banks in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1291-1302, May.
    4. Wezel, Torsten, 2004. "Foreign Bank Entry into Emerging Economies: An Empirical Assessment of the Determinants and Risks Predicated on German FDI Data," Discussion Paper Series 1: Economic Studies 2004,01, Deutsche Bundesbank.
    5. Buch, Claudia M. & Lipponer, Alexander, 2007. "FDI versus exports: Evidence from German banks," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 805-826, March.
    6. Bellak, Christian & Leibrecht, Markus & Riedl, Aleksandra, 2008. "Labour costs and FDI flows into Central and Eastern European Countries: A survey of the literature and empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 17-37, March.
    7. Christian Bellak & Markus Leibrecht, 2009. "Do low corporate income tax rates attract FDI? - Evidence from Central- and East European countries," Applied Economics, Taylor & Francis Journals, vol. 41(21), pages 2691-2703.
    8. Kleimeier, Stefanie & Sander, Harald & Heuchemer, Sylvia, 2013. "Financial crises and cross-border banking: New evidence," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 884-915.
    9. Ryuichi Nakagawa, 2022. "Bank herding in loan markets: Evidence from geographical data in Japan," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 72-89, March.
    10. Claudia M. Buch & Gayle L. DeLong, 2008. "Banking Globalization: International Consolidation and Mergers in Banking," IAW Discussion Papers 38, Institut für Angewandte Wirtschaftsforschung (IAW).
    11. Cuevas Casaña, Joaquim & Martín Aceña, Pablo & Pons Brias, María A., 2019. "How local conditions affect global banking: The case of BBVA and Santander," eabh Papers 19-02, The European Association for Banking and Financial History (EABH).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alberto Franco Pozzolo, 2009. "Bank Cross-Border Mergers and Acquisitions: Causes, Consequences, and Recent Trends," Springer Books, in: Alberto Zazzaro & Michele Fratianni & Pietro Alessandrini (ed.), The Changing Geography of Banking and Finance, edition 1, chapter 0, pages 155-183, Springer.
    2. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
    3. Disdier, Anne-Celia & Mayer, Thierry, 2004. "How different is Eastern Europe? Structure and determinants of location choices by French firms in Eastern and Western Europe," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 280-296, June.
    4. Jonathan Jones, 2017. "Agglomeration economies and the location of foreign direct investment: A meta-analysis," Journal of Regional Science, Wiley Blackwell, vol. 57(5), pages 731-757, November.
    5. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    6. Christian Hilber & Ioan Voicu, 2010. "Agglomeration Economies and the Location of Foreign Direct Investment: Empirical Evidence from Romania," Regional Studies, Taylor & Francis Journals, vol. 44(3), pages 355-371.
    7. Berger, Allen N., 2007. "Obstacles to a global banking system: "Old Europe" versus "New Europe"," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1955-1973, July.
    8. Mayer, T. & Mejean, I. & Nefussi, B., 2010. "The location of domestic and foreign production affiliates by French multinational firms," Journal of Urban Economics, Elsevier, vol. 68(2), pages 115-128, September.
    9. Cerutti, Eugenio & Dell'Ariccia, Giovanni & Martinez Peria, Maria Soledad, 2007. "How banks go abroad: Branches or subsidiaries?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1669-1692, June.
    10. Mayer, T. & Mejean, I. & Nefussi, B., 2010. "The location of domestic and foreign production affiliates by French multinational firms," Journal of Urban Economics, Elsevier, vol. 68(2), pages 115-128, September.
    11. Jonas Kleineick & Andrea Ascani & Martijn Smit, 2020. "Multinational investments across Europe: a multilevel analysis," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 40(1), pages 67-105, April.
    12. Ilko Naaborg & Bert Scholtens & Jakob de Haan & Hanneke Bol & Ralph de Haas, 2004. "How Important are Foreign Banks in the Financial Development of European Transition Countries?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 99-123, August.
    13. Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2015. "Economic Institutions and the Location Strategies of European Multinationals in their Geographical Neighbourhood," LEQS – LSE 'Europe in Question' Discussion Paper Series 97, European Institute, LSE.
    14. Merz, Julia & Overesch, Michael & Wamser, Georg, 2017. "The location of financial sector FDI: Tax and regulation policy," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 14-26.
    15. João Ricardo Faria, 2016. "Location Clusters, FDI and Local Entrepreneurs: Consistent Public Policy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 7(4), pages 858-868, December.
    16. repec:hal:spmain:info:hdl:2441/10162 is not listed on IDEAS
    17. Mohamed Azzim Gulamhussen & Carlos Pinheiro & Alberto Franco Pozzolo, 2010. "Do multinational banks create or destroy economic value?," Mo.Fi.R. Working Papers 36, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    18. Kandogan, Yener, 2012. "Regional foreign direct investment potential of the states within the US," Journal of Economics and Business, Elsevier, vol. 64(4), pages 306-322.
    19. repec:hal:spmain:info:hdl:2441/c8dmi8nm4pdjkuc9g8mcgcdbi is not listed on IDEAS
    20. Peter Debaere & Joonhyung Lee & Myungho Paik, 2010. "Agglomeration, backward and forward linkages: evidence from South Korean investment in China," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 520-546, May.
    21. Claudia M. Buch & Gayle L. DeLong, 2008. "Banking Globalization: International Consolidation and Mergers in Banking," IAW Discussion Papers 38, Institut für Angewandte Wirtschaftsforschung (IAW).
    22. Loles Añón Higón & Alfonso Díez-Minguela, 2021. "Location, Location, Location: Do Universities Matter for Foreign R&D?," Working Papers 2109, Department of Applied Economics II, Universidad de Valencia.

    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ijc:ijcjou:y:2006:q:2:a:5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bank for International Settlements (email available below). General contact details of provider: https://www.ijcb.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.