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The Role of Foreign Banks in Trade

Stijn Claessens (), Omar Hassib and Neeltje Van Horen ()

No 11821, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper provides new insights into how financial globalization relates to international trade. Exploiting unique, time-varying, bilateral data on foreign bank ownership for many countries, we show that greater local foreign bank presence, especially from the importing country, is associated with higher exports in sectors more dependent on external finance. The association, which only arises for emerging markets, is stronger when these countries' institutions are weaker. The presence of a bank from the importing country is also associated with higher exports in sectors with more opaque products. Results are robust to controlling for domestic financial development and a full set of fixed effects. An event study confirms findings and shows impacts to be more pronounced when a foreign bank enters through an M&A. Imports also increase after entry, but less so. Overall, results suggest that foreign banks facilitate trade by increasing the availability of external finance and helping overcome information asymmetries.

Keywords: credit constraints; Financial Development; foreign banks; International Trade (search for similar items in EconPapers)
JEL-codes: F14 F15 F21 F36 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-int
Date: 2017-02
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