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A Model of International Trade in Banking Services

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  • David VanHoose

Abstract

This paper combines essential elements of the theory of intra-industry international trade with an imperfect-competition banking framework to develop a model of intra-industry international trade in banking services. The model yields the prediction that if, for instance, the production of lending services is labor intensive while the provision of deposit services is physical-capital-intensive, banks located in a foreign nation with a relatively larger labor endowment will export lending services while banks based in a domestic country with a relatively larger endowment of physical capital will export deposit services. These efficiency-based trade flows indicate that domestic borrowers and savers will be net recipients of credit and deposits, respectively, with foreign banks obtaining funds that permit them to act as net lenders to the domestic nation by borrowing from domestic banks in a global wholesale interbank funds market. A key implication of the model, therefore, is that attainment of profit-maximizing intra-industry flows of banking-service trade requires the smooth functioning of this interbank market. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • David VanHoose, 2013. "A Model of International Trade in Banking Services," Open Economies Review, Springer, vol. 24(4), pages 613-625, September.
    • Handle: RePEc:kap:openec:v:24:y:2013:i:4:p:613-625
    DOI: 10.1007/s11079-012-9265-1
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    Cited by:

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    More about this item

    Keywords

    Trade in banking services; International banking; G21; F12;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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