Location Decisions of Italian Banks: Drivers of Expansion into Emerging and Transition Economies
LLEE Working Document No. 51
40 Pages Posted: 12 Nov 2008
Date Written: JULY 10, 2007
Since the mid-1990s, internationally active banks around the world have pursued policies to expand their presence in emerging markets. Growing volumes of cross border banking activities have triggered a burgeoning literature on financial FDI, mainly focused on merits and pitfalls of foreign-bank presence. Yet, little attention has been paid to how that presence is established. This paper aims to explain banks' location choices into emerging and transition markets from the perspective of the Italian banks. Entry decisions are analysed using ordered probit regressions that model organizational forms to be dependent on several "push" and "pull" factors. The former apply to home country/sector characteristics motivating internationally active banks to expand their operations abroad. The latter refer to host country/sector features that amplify the attractiveness of domestic markets. The results validate most of the ex-ante expectations but pose some questions. Firstly, the "follow the client" strategy appears fairly important but clearly not sufficient to explain the actual broadening of foreign activities of Italian banks. Second, the lack of significance of the variables representing risk, apart from the M2 ratio, together with the relevance of the index of comparative advantage in institutional quality requires further analyses on the spillovers from international banking activities, especially during crisis periods.
Keywords: foreign direct investment, international banking, ordered probit
JEL Classification: F21, F23, G21
Suggested Citation: Suggested Citation