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

Cathérine Koch

Bank for International Settlements (BIS)

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 Koch, 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

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

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

Catherine Koch

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
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/

Register to save articles to
your library

Register

Paper statistics

Downloads
121
Abstract Views
701
rank
215,169
PlumX Metrics