Did the world settle its debts through the branches of multinational banks? Evidence from the 1930s

Laura Panza and David Merrett

No 30, CEH Discussion Papers from Centre for Economic History, Research School of Economics, Australian National University

Abstract: The motivation for this paper is to discover the arrangements made by banks to settle the world’s financial payments in the 1930s. Drawing from transaction cost theory we show that correspondent banking relationships were more important and widespread than multinational banks’ branches. The argument is then tested empirically by a gravity model using an instrumental Poisson pseudomaximum likelihood estimation strategy. We find that the strength of bilateral trade, the presence of financial centres, colonial linkages and the size of the financial sector in host countries drove the choice between branches and correspondents.

Date: 2014-08
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Persistent link: https://EconPapers.repec.org/RePEc:auu:hpaper:030

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