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

Katja Neugebauer

No 2.5, Working Paper / FINESS from DIW Berlin, German Institute for Economic Research

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 over the time period 1995-2005, and I estimate cross-section regressions for each year. I find strong evidence for a spatial dimension in crossborder banking. Furthermore, the direct effect of distance decreases signficantly when applying spatial econometric techniques.

Keywords: spatial econometrics; gravity equation; banking market integration; distance puzzle (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_ ... diw_finess_02050.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? (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwfin:diwfin2.5

Access Statistics for this paper

More papers in Working Paper / FINESS from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().