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FDI versus cross-border financial services: The globalisation of German banks

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  • Buch, Claudia M.
  • Lipponer, Alexander

Abstract

The choice between foreign direct investment (FDI) and exports has been a recurrent theme in the literature on international trade, yet few studies have analysed this choice at the level of the individual firm. This paper uses a new dataset to study the FDI-versus-exports decision for banks. We use data on the foreign direct investment stocks and the cross-border provision of financial services of German banks for the period 1997-2000 to describe the regional pattern of banks' international activities. We find that country- and bank-specific variables capturing size have a major impact on banks' foreign activities. The results are consistent with the hypothesis that the realisation of economies of scale and the provision of trade-related finance shape globalisation patterns. Greater cultural and geographical distance, by contrast, potentially limit the international expansion of banks. Our results also suggest that FDI and cross-border services are complements rather than substitutes.

Suggested Citation

  • 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.
  • Handle: RePEc:zbw:bubdp1:1818
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Arjan Lejour & Peter Smith, 2008. "International Trade in Services—Editorial Introduction," Journal of Industry, Competition and Trade, Springer, vol. 8(3), pages 169-180, December.
    2. Carmen Fillat Castejón & Joseph F. Francois & Julia Woerz, 2008. "Trade through FDI: investing in services," Documentos de Trabajo dt2008-06, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    3. Beck, Thorsten & Brown, Martin, 2011. "Use of Banking Services in Emerging Markets--Household-Level Evidence," CEPR Discussion Papers 8475, C.E.P.R. Discussion Papers.
    4. 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.
    5. Herrero, Alicia Garcia & Martinez Peria, Maria Soledad, 2007. "The mix of international banks' foreign claims: Determinants and implications," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1613-1631, June.
    6. Nestmann, Thorsten, 2005. "German bank lending to industrial and non-industrial countries: driven by fundamentals or different treatment?," Discussion Paper Series 2: Banking and Financial Studies 2005,08, Deutsche Bundesbank.
    7. 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.
    8. Stijn Claessens, 2006. "Competitive Implications of Cross-Border Banking," World Scientific Book Chapters,in: Cross-Border Banking Regulatory Challenges, chapter 11, pages 151-181 World Scientific Publishing Co. Pte. Ltd..
    9. 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.
    10. Haselmann, Rainer, 2006. "Strategies of foreign banks in transition economies," Emerging Markets Review, Elsevier, vol. 7(4), pages 283-299, December.
    11. Beck, Thorsten & Brown, Martin, 2015. "Foreign bank ownership and household credit," Journal of Financial Intermediation, Elsevier, vol. 24(4), pages 466-486.
    12. Václav Žďárek, 2009. "Moderní způsoby produkce a přímé zahraniční investice
      [Modern methods of production and foreign direct investment]
      ," Politická ekonomie, University of Economics, Prague, vol. 2009(4), pages 509-543.
    13. Beck, Thorsten & Martinez Peria, Maria Soledad, 2010. "Foreign bank participation and outreach: Evidence from Mexico," Journal of Financial Intermediation, Elsevier, vol. 19(1), pages 52-73, January.
    14. Cull, Robert & Martinez Peria, Maria Soledad, 2007. "Foreign bank participation and crises in developing countries," Policy Research Working Paper Series 4128, The World Bank.
    15. Khaing, Khaing Sape Saw, 2007. "Globalization and Change of Investment Environment in ASEAN," MPRA Paper 42003, University Library of Munich, Germany.
    16. Joseph F. Francois & Olga Pindyuk & Julia Woerz, 2008. "Trade Effects of Services Trade Liberalization in the EU," FIW Research Reports series I-004, FIW.
    17. Beck, Thorsten & Brown, Martin, 2011. "Which households use banks? Evidence from the transition economies," Working Paper Series 1295, European Central Bank.

    More about this item

    Keywords

    international banking; gravity equations; foreign direct investment; cross-border financial services;

    JEL classification:

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

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