Better the Devil that You Know: Evidence on Entry Costs Faced by Foreign Banks

20 Pages Posted: 21 Apr 2011

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Alejandro Micco

University of Chile

César Manuel Serra

affiliation not provided to SSRN

Date Written: January 2003

Abstract

Institutional and legal differences between countries increase entry costs and reduce the ability of banks to expand abroad. We use bilateral foreign banking data for 176 countries to estimate a gravity model in which bilateral cross-border banking activity is explained, in addition to standard variables, by legal and institutional differences. We find that foreign banking is negatively affected by absolute differences in the legal setup and in basic institutions between source and host countries. Differences in the legal origin, for example, reduce bilateral participation in the banking system by nearly 11 percent. Additionally we do not find strong evidence suggesting asymmetries in adapting to “better” or “worse” institutional/legal environments.

Suggested Citation

Galindo, Arturo José and Micco, Alejandro and Serra, César Manuel, Better the Devil that You Know: Evidence on Entry Costs Faced by Foreign Banks (January 2003). IDB Working Paper No. 399. Available at SSRN: https://ssrn.com/abstract=1817269 or http://dx.doi.org/10.2139/ssrn.1817269

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Alejandro Micco

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

César Manuel Serra

affiliation not provided to SSRN

No Address Available

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