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The Ideal Loan and the Patterns of Cross-Border Bank Lending


  • Joern Kleinert

    () ( Karl-Franzens University of Graz)

  • Bettina Brueggemann

    () (University of Frankfurt)

  • Esteban Prieto

    () (University of Tuebingen)


A typical loan offer is a differentiated product with various negotiated characteristics (maturity, amount, timing, collateral, disclosure requirements) which involve costs that go beyond the mere interest rate. Taking into account all costs, a firm chooses the cost minimizing loan offer. Based on this decision criterion, we derive the probability of a firm from country i to choose a loan contract from a bank in country j. We use this probability to derive a gravity equation for cross-border bank loans. Finally, we estimate the gravity equation based on the theoretical model controlling for the unobserved heterogeneity proposed by our theoretical model.

Suggested Citation

  • Joern Kleinert & Bettina Brueggemann & Esteban Prieto, 2012. "The Ideal Loan and the Patterns of Cross-Border Bank Lending," Graz Economics Papers 2012-03, University of Graz, Department of Economics.
  • Handle: RePEc:grz:wpaper:2012-03

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    References listed on IDEAS

    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
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    6. Okawa, Yohei & van Wincoop, Eric, 2012. "Gravity in International Finance," Journal of International Economics, Elsevier, vol. 87(2), pages 205-215.
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    8. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    9. Buch, Claudia M, 2002. "Are Banks Different? Evidence from International Data," International Finance, Wiley Blackwell, vol. 5(1), pages 97-114, Spring.
    10. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    11. Jinyong Hahn & Jerry Hausman & Guido Kuersteiner, 2004. "Estimation with weak instruments: Accuracy of higher-order bias and MSE approximations," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 272-306, June.
    12. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    13. repec:spo:wpmain:info:hdl:2441/c8dmi8nm4pdjkuc9g7287gghh is not listed on IDEAS
    14. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    15. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
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    Cited by:

    1. Caroline Mehigan, 2016. "Bilateral Adjustment of Bank Assets: Boom and Bust," Trinity Economics Papers tep0616, Trinity College Dublin, Department of Economics.
    2. Bremus, Franziska M., 2015. "Cross-border banking, bank market structures and market power: Theory and cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 242-259.
    3. Bremus, Franziska & Fratzscher, Marcel, 2015. "Drivers of structural change in cross-border banking since the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 32-59.

    More about this item


    Product differentiation; Gravity Equation; Cross-border bank lending;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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