Margins of International Banking: Is There a Productivity Pecking Order in Banking, Too?

49 Pages Posted: 10 Jan 2010

See all articles by Claudia M. Buch

Claudia M. Buch

Deutsche Bundesbank

Catherine Casanova

SNB

Michael Koetter

Halle Institute for Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 2009

Abstract

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.

JEL Classification: F30, G21

Suggested Citation

Buch, Claudia M. and Casanova, Catherine and Koetter, Michael, Margins of International Banking: Is There a Productivity Pecking Order in Banking, Too? (December 2009). CESifo Working Paper Series No. 2891, Available at SSRN: https://ssrn.com/abstract=1532693 or http://dx.doi.org/10.2139/ssrn.1532693

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Catherine Casanova

SNB ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

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