FDI Versus Cross-Border Financial Services: The Globalisation of German Banks

Deutsche Bundesbank Economic Research Centre Discussion Paper No. 05/2004

52 Pages Posted: 5 Apr 2004

Multiple version iconThere are 2 versions of this paper

Date Written: February 2004

Abstract

The choice between foreign direct investment (FDI) and exports has been a recurrent theme in the literature on international trade, yet few studies have analysed this choice at the level of the individual firm. This paper uses a new dataset to study the FDI-versus-exports decision for banks. We use data on the foreign direct investment stocks and the cross-border provision of financial services of German banks for the period 1997-2000 to describe the regional pattern of banks' international activities. We find that country- and bank-specific variables capturing size have a major impact on banks' foreign activities. The results are consistent with the hypothesis that the realisation of economies of scale and the provision of trade-related finance shape globalisation patterns. Greater cultural and geographical distance, by contrast, potentially limit the international expansion of banks. Our results also suggest that FDI and cross-border services are complements rather than substitutes.

Keywords: International banking, gravity equations, foreign direct investment, cross-border financial services

JEL Classification: F0, F21

Suggested Citation

Buch, Claudia M. and Lipponer, Alexander, FDI Versus Cross-Border Financial Services: The Globalisation of German Banks (February 2004). Deutsche Bundesbank Economic Research Centre Discussion Paper No. 05/2004, Available at SSRN: https://ssrn.com/abstract=524002 or http://dx.doi.org/10.2139/ssrn.524002

Claudia M. Buch (Contact Author)

Deutsche Bundesbank ( email )

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

Alexander Lipponer

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

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