The Role of Foreign Banks in Trade

60 Pages Posted: 10 Apr 2017

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Omar Hassib

Bank of England

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Date Written: April 10, 2017

Abstract

This paper provides new insights into how financial globalization relates to international trade. Exploiting unique, time-varying, bilateral data on foreign bank ownership for many countries, we show that, for emerging markets, greater local foreign bank presence, especially from the importing country, is associated with higher exports in sectors more dependent on external finance. The association does not arise for advanced countries and is stronger when institutions are weaker. The presence of a bank from the importing country is also associated with higher exports in sectors with more opaque products. Results are robust to controlling for domestic financial development and a full set of fixed effects. An event study confirms findings and shows impacts to be more pronounced when a foreign bank enters through an M&A. Imports also increase after entry, but less so. Overall, results suggest that foreign banks facilitate trade in emerging markets by increasing the availability of external finance and helping overcome information asymmetries.

Keywords: Foreign banks, international trade, credit constraints, financial development

JEL Classification: F14, F15, F21, F36, G21

Suggested Citation

Claessens, Stijn and Hassib, Omar and van Horen, Neeltje, The Role of Foreign Banks in Trade (April 10, 2017). Bank of England Working Paper No. 656. Available at SSRN: https://ssrn.com/abstract=2949783 or http://dx.doi.org/10.2139/ssrn.2949783

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Omar Hassib

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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