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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Margins of international banking: Is there a productivity pecking order in banking, too? |
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| Language |
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| Institution | Deutsche Bundesbank |
| Series Name | Series 2: Banking and Financial Studies |
| Number | 12/2009 |
| Number of Pages | 36 |
| Date | 2009 |
| Abstract Text | Modern trade theory emphasizes firm-level productivity differentials to explain the cross-border activities of non-financial firms. This study tests whether a productivity pecking order also determines international banking activities. Using a novel dataset that contains all German banks’ international activities, we estimate the ordered probability of a presence abroad (extensive margin) and the volume of international assets (intensive margin). Methodologically, we enrich the conventional Heckman selection model to account for the self-selection of banks into different modes of foreign activities using an ordered probit. Four main findings emerge. First, similar to results for non-financial firms, a productivity pecking order drives bank internationalization. Second, only a few non-financial firms engage in international trade, but many banks hold international assets, and only a few large banks engage in foreign direct investment. Third, in addition to productivity, risk factors matter for international banking. Fourth, gravity-type variables have an important impact on international banking activities. |
| Free access at | Official URL |
| Official URL | http://www.bundesbank.de/download/bankenaufsicht/dkp/200912dkp_b_.pdf |
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