Where Do Banks Expand Abroad? An Empirical Analysis

Dario Focarelli (focarelli.dario@insedia.interbusiness.it) and Alberto Pozzolo

Economics & Statistics Discussion Papers from University of Molise, Department of Economics

Abstract: This paper investigates the determinants of the pattern of banks' foreign investment. We extended previous analyses in three directions. First, we use a unique database that includes information on 260 large banks from OECD countries and all their foreign branches and subsidiaries in each one of the other OECD countries. Second, we consider explicitly the role of institutional and regulatory characteristics. Third, we considered within a unified framework a wide set of variables that are likely to influence the pattern of bank internationalization. Consistent with previous research, we find that a high degree of integration between the home and the destination countries has an effect on the location choice of multinational banks. However, we also find that the marginal effect of integration is much lower than that of other explanatory variables. Profit opportunities resulting from a high expected economic growth and the prospect of competing with relatively less efficient banks appear to be a key factor affecting the expansion abroad, especially in the case of subsidiaries. Institutional characteristics of the destination country also play a crucial role. For example, financial centers attract branches of foreign banks, but not subsidiaries, while lower regulatory restrictions on banking activities are associated with a stronger presence of foreign subsidiaries, but not of branches.

Keywords: international banking; foreign direct investment. (search for similar items in EconPapers)
JEL-codes: E30 F21 F23 G21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2003-07-18
New Economics Papers: this item is included in nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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