Banks in Space: Does Distance Really Affect Cross-Border Banking?

Katja Neugebauer

ERSA conference papers from European Regional Science Association

Abstract: During the last years, gravity equations have leapt from the trade literature over into the literature on financial markets. Martin and Rey (2004) were the first to provide a theoretical model for cross-border asset trade, yielding a structural gravity equation that could be tested empirically. In this paper, I use a gravity model to evaluate factors that affect cross-border banking. Furthermore, I extend the baseline model to allow for third-country effects, which have been shown to matter for international trade, using spatial econometric techniques. I try to answer the following question: First, is there a spatial dimension in cross-border banking? Second, if so, has it changed over time, and third, what happens if this spatial dimension is ignored? I use bilateral data on cross-border banking assets for 15 countries, and I estimate cross-section regressions for each year. I find strong evidence for a spatial dimension in cross-border banking. Furthermore, the direct effect of distance decreases significantly when applying spatial econometric techniques.

Date: 2011-09
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (4)

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https://www-sre.wu.ac.at/ersa/ersaconfs/ersa11/e110830aFinal01227.pdf (application/pdf)

Related works:
Working Paper: Banks in Space: Does Distance Really Affect Cross-Border Banking? (2011)
Working Paper: Banks in Space: Does Distance Really Affect Cross-Border Banking? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa11p1227

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