Location Decisions of Italian Banks: Drivers of Expansion into Emerging and Transition Economies

LLEE Working Document No. 51

40 Pages Posted: 12 Nov 2008

See all articles by Giovanna Paladino

Giovanna Paladino

IntesaSanpaolo; LUISS Economics Department

Date Written: JULY 10, 2007

Abstract

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

Paladino, Giovanna, Location Decisions of Italian Banks: Drivers of Expansion into Emerging and Transition Economies (JULY 10, 2007). LLEE Working Document No. 51. Available at SSRN: https://ssrn.com/abstract=1298977 or http://dx.doi.org/10.2139/ssrn.1298977

Giovanna Paladino (Contact Author)

IntesaSanpaolo ( email )

Piazza San Carlo
Torino, 10121
Italy

LUISS Economics Department ( email )

Viale di Villa Massimo, 57
Rome, 00161
Italy

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