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
Date Written: February 2004
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: Suggested Citation