Location Decisions of Foreign Banks and Institutional Competitive Advantage

33 Pages Posted: 17 Mar 2008 Last revised: 10 Oct 2011

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Neeltje van Horen

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

Familiarity with working in a specific institutional environment compared to its competitors can provide a firm with a competitive advantage, making it invest in specific host countries. We examine whether this notion of institutional competitive advantage drives banks to seek out specific markets. Using detailed, bilateral data of bank ownership for a large number of countries over 1995-2006 and using a first-difference model, we find that institutional competitive advantage importantly drives banks' location decisions. Results are robust to different samples and model specifications, various econometric techniques and alternative measures of institutional quality. This finding has some policy implications, including on the increased cross-border banking among developing countries.

Keywords: foreign direct investment, international banking, institutions

JEL Classification: F21, F23, G21

Suggested Citation

Claessens, Stijn and van Horen, Neeltje, Location Decisions of Foreign Banks and Institutional Competitive Advantage (March 2008). Available at SSRN: https://ssrn.com/abstract=904332 or http://dx.doi.org/10.2139/ssrn.904332

Stijn Claessens

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Neeltje Van Horen (Contact Author)

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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