Location Decisions of Foreign Banks and Competitive Advantage

21 Pages Posted: 20 Apr 2016

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: January 1, 2007


While institutional differences have been found to affect country growth patterns, much has remained unexplained, including how economic actors overcome institutional weaknesses and how internationalization helps or hinders development. Banking is an institutionally-intensive activity and the location decision of foreign banks provides a good test of how institutional differences are dealt with and how they may affect economic choices. Specifically, the authors examine whether banks seek out those markets where institutional familiarity provides them with a competitive advantage over other foreign competitor banks. Using bilateral data on banking sector foreign direct investment in all developing countries and controlling for other factors, they find that competitive advantage is an important factor in driving foreign banks' location decisions. The findings suggest that high institutional quality is not necessarily a prerequisite to attract foreign direct investment in banking and that there are specific benefits, as well as risks, to international financial integration between developing countries.

Keywords: Banks & Banking Reform, Foreign Direct Investment, Country Strategy & Performance, Corporate Law, Economic Theory & Research

Suggested Citation

Claessens, Stijn and van Horen, Neeltje, Location Decisions of Foreign Banks and Competitive Advantage (January 1, 2007). World Bank Policy Research Working Paper No. 4113. Available at SSRN: https://ssrn.com/abstract=958173

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel

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 )

United Kingdom

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