IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

On the geography of international banking: the role of third-country effects

Listed author(s):
  • Georgios Fotopoulos

    (University of Peloponnese and visiting scholar at the Bank of Greece)

  • Helen Louri

    ()

    (Bank of Greece)

International banking is a complex phenomenon. Among its determinants, distance has been found to be critical. But does distance only have a simple negative direct effect? Or is the role of geography more intricate? Applying spatial analysis techniques on BIS data of bank foreign claims in 178 countries in 2006, evidence of positive spatial autocorrelation under alternative spatial weights schemes is brought to light. The geographical aspects of international banking are further explored by a spatial autoregressive gravity model. The results obtained support that the operation of a spatial lag leads to important indirect or third-country effects. Evidence of such financial spillovers is further corroborated by results of a spatial autoregressive Tobit model. Geography is more important than the effect of distance on its own would suggest. Third-country effects operate in a manner that subsequently connects countries through links beyond those immediately involved in borrowing (destination) and lending (origin) relationships. Confirming earlier results, the economic size of sending and recipient countries, cultural similarity and in-phase business cycles enhance international banking, while distance and exchange rate volatility hinder it. Also, while lower political risk has a positive role, so do higher financial and economic risks, reflecting-to some extent-some of the reasons behind the current financial crisis.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper2011125.pdf
File Function: Full Text
Download Restriction: no

Paper provided by Bank of Greece in its series Working Papers with number 125.

as
in new window

Length: 43
Date of creation: Mar 2011
Handle: RePEc:bog:wpaper:125
Contact details of provider: Web page: http://www.bankofgreece.gr

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window

  1. Papaioannou, Elias, 2008. "What Drives International Financial Flows? Politics, Institutions and Other Determinants," CEPR Discussion Papers 7010, C.E.P.R. Discussion Papers.
  2. Buch, Claudia M, 2003. " Information or Regulation: What Drives the International Activities of Commercial Banks?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 851-869, December.
  3. Williams, Barry, 1997. " Positive Theories of Multinational Banking: Eclectic Theory versus Internalisation Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 11(1), pages 71-100, March.
  4. Stephen G. Hall & Pavlos Petroulas, 2008. "Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?," Working Papers 67, Bank of Greece.
  5. Brealey, R. A. & Kaplanis, E. C., 1996. "The determination of foreign banking location," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 577-597, August.
  6. Focarelli, Dario & Pozzolo, Alberto Franco, 2003. "Where Do Banks Expand Abroad? An Empirical Analysis," Economics & Statistics Discussion Papers esdp03009, University of Molise, Dept. EGSeI.
  7. A S Brandsma & R H Ketellapper, 1979. "A biparametric approach to spatial autocorrelation," Environment and Planning A, Pion Ltd, London, vol. 11(1), pages 51-58, January.
  8. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
  9. Herrero, Alicia Garcia & Martinez Peria, Maria Soledad, 2005. "The mix of international banks'foreign claims : determinants and implications," Policy Research Working Paper Series 3755, The World Bank.
  10. Zsófia Arvai & Karl Driessen & Ínci Ötker-Robe, 2009. "Regional Financial Interlinkages and Financial Contagion within Europe," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 522-540, December.
  11. Claudia M. Buch & John C. Driscoll & Charlotte Ostergaard, 2004. "Cross-border diversification in bank asset portfolios," Finance and Economics Discussion Series 2004-26, Board of Governors of the Federal Reserve System (U.S.).
  12. Pozzolo, Alberto Franco & Focarelli, Dario, 2007. "Cross-Border M&As in the Financial Sector. Is Banking Different from Insurance?," Economics & Statistics Discussion Papers esdp07032, University of Molise, Dept. EGSeI.
  13. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
  14. Manfred M. Fischer & Daniel A. Griffith, 2008. "Modeling Spatial Autocorrelation In Spatial Interaction Data: An Application To Patent Citation Data In The European Union," Journal of Regional Science, Wiley Blackwell, vol. 48(5), pages 969-989.
  15. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  16. Philip Lane & Gian Maria Milesi-Ferretti, 2005. "International Investment Patterns," The Institute for International Integration Studies Discussion Paper Series iiisdp024, IIIS.
  17. Massimo Sbracia & Andrea Zaghini, 2003. "The Role of the Banking System in the International Transmission of Shocks," The World Economy, Wiley Blackwell, vol. 26(5), pages 727-754, 05.
  18. Goddard, John & Molyneux, Philip & Wilson, John O.S. & Tavakoli, Manouche, 2007. "European banking: An overview," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1911-1935, July.
  19. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2007. "Export-Platform Foreign Direct Investment," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 776-795, 06.
  20. Claudia M. Buch, 2005. "Distance and International Banking," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 787-804, 09.
  21. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
  22. Harry Kelejian & George Tavlas & George Hondroyiannis, 2006. "A Spatial Modelling Approach to Contagion Among Emerging Economies," Open Economies Review, Springer, vol. 17(4), pages 423-441, December.
  23. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
  24. James P. LeSage & R. Kelley Pace, 2008. "Spatial Econometric Modeling Of Origin-Destination Flows," Journal of Regional Science, Wiley Blackwell, vol. 48(5), pages 941-967.
  25. Dariusz Wójcik, 2009. "Geography stupid! A note on the credit crunch," Environment and Planning A, Pion Ltd, London, vol. 41(2), pages 258-260, February.
  26. A S Brandsma & R H Ketellapper, 1979. "A Biparametric Approach to Spatial Autocorrelation," Environment and Planning A, SAGE Publishing, vol. 11(1), pages 51-58, January.
  27. Sebastian Edwards, 2000. "Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies," NBER Books, National Bureau of Economic Research, Inc, number edwa00-1.
  28. A. Porojan, 2001. "Trade Flows and Spatial Effects: The Gravity Model Revisited," Open Economies Review, Springer, vol. 12(3), pages 265-280, July.
  29. Van Rijckeghem, Caroline & Weder, Beatrice, 2003. "Spillovers through banking centers: a panel data analysis of bank flows," Journal of International Money and Finance, Elsevier, vol. 22(4), pages 483-509, August.
  30. Bolduc, Denis & Laferriere, Richard & Santarossa, Gino, 1992. "Spatial autoregressive error components in travel flow models," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 371-385, September.
  31. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers 10939, National Bureau of Economic Research, Inc.
  32. Georgios Fotopoulos & Helen Louri, 2011. "On the Geography of International Banking: a case for spatial econometrics?," ERSA conference papers ersa10p1081, European Regional Science Association.
  33. DeLong, Gayle L. & Buch, Claudia M., 2001. "Cross-Border Bank Mergers: What Lures the Rare Animal?," Kiel Working Papers 1070, Kiel Institute for the World Economy (IfW).
  34. 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.
  35. Aviat, Antonin & Coeurdacier, Nicolas, 2006. "The Geography of Trade in Goods and Asset Holdings," ESSEC Working Papers DR 06012, ESSEC Research Center, ESSEC Business School.
  36. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Sources of contagion: is it finance or trade?," Journal of International Economics, Elsevier, vol. 54(2), pages 293-308, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bog:wpaper:125. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christina Tsochatzi)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.