why do banks go abroad -- evidence from German banks

Why do banks go - Kiel Institute of World Economics Dsternbrooker Weg 120 D-24105 Kiel Kiel Working Paper No 948 Why Do Banks Go Abroad Evidence

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Kiel Institute of World Economics Düsternbrooker Weg 120 D-24105 Kiel Kiel Working Paper No. 948 Why Do Banks Go Abroad? — Evidence from German Data by Claudia M. Buch September 1999 The author himself, not the Kiel Institute of World Economics, is solely respon- sible for the contents and distribution of each Kiel Working Paper. Since the se- ries involves manuscriptes in a preliminary form, interested readers are requested to direct criticisms and suggestions directly to the author and to clear any quota- tion with her.
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– 2 – Abstract * This paper provides empirical evidence on the determinants of foreign activities of German banks. We use regionally disaggregated panel data for the years 1981–98 and distinguish foreign direct investment from total foreign assets of domestic banks, of their foreign branches and their subsidiaries. Foreign activities are found to be positively related to demand conditions on the local market, for- eign activities of German firms, and the presence of financial centers. This sup- ports the hypothesis that German banks follow their customers abroad. Exchange rate volatility has some negative impact. EU membership and the abolition of capital controls seem to have exerted a greater influence on foreign assets than on FDI of German banks, thus weakly supporting the hypothesis that the two are substitutes. (122 words) Keywords: foreign activities of commercial banks, Germany, panel coin- tegration JEL-classification: F21 (international investment, long-term capital movements), F23 multinational firms, international business), G21 (banks, other depository institutions, mortgages) _______________ * Mailing address: The Kiel Institute of World Economics, Düsternbrooker Weg 120, 24105 Kiel, Phone: *49-431-8814-332 Fax: *49-431-85853, E-Mail: [email protected] The author would like to thank Jörg Döpke, Katja Gerling, Ralph P. Heinrich, and Stefan M. Golder for a critical review and for most helpful comments on an earlier draft. All remaining errors and in- accuracies are solely in my own responsibility.
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– 3 – Contents 1 Motivation. .......................................................................................................................... 4 2 Why Do Banks Go Abroad? . ............................................................................................... 5 2.1 Foreign Borrowing and Lending. .................................................................................... 5 2.2 Foreign Direct Investment. ............................................................................................. 8 3 Earlier Empirical Evidence. ................................................................................................ 10 4 Determinants of FDI of German Banks . ............................................................................. 12 4.1 Stylized Facts. .............................................................................................................. 12 4.2 Regression Results. ...................................................................................................... 17 5 Determinants of Cross Border Lending and Borrowing. ..................................................... 22 5.1 Stylized Facts. .............................................................................................................. 23 5.2 Regression Results. ...................................................................................................... 25 6 Conclusions. ...................................................................................................................... 29 7 References. ........................................................................................................................ 31 Tables Table 1 — Overview of Earlier Work . .................................................................................... 9 Table 2 — Regional Structure of German FDI (%), 1991–1997. ........................................... 16 Table 3 — Determinants of Stock of German FDI in Banking (Cross Section, 1997) . .......... 19 Table 4 — Determinants of Foreign Assets of German Banks (Cross Section, 1997). ........... 26 Table 5 — Determinants of Foreign Assets of German Banks (Time Series 1981–98). ......... 27 Table A1 — Data Definitions and Sources. ........................................................................... 34 Table A2 — Country Samples . ............................................................................................. 35 Table A3 — Correlation Matrix for FDI-Panel, 1997. ........................................................... 36 Table A4 — Correlation Matrix for Total Panel, 1997 . ......................................................... 37 Table A5 — ADF Tests. ....................................................................................................... 38 Graphs Graph 1 — Flows of FDI into the Financial Sector (million US-Dollar), 1985–1997 . ............ 13 Graph 2 — Stocks of FDI in the Financial Sector (% of Total FDI), 1985–1997.
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This note was uploaded on 01/31/2011 for the course MGCR MGCR 331 taught by Professor Kerklan during the Fall '10 term at McGill.

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Why do banks go - Kiel Institute of World Economics Dsternbrooker Weg 120 D-24105 Kiel Kiel Working Paper No 948 Why Do Banks Go Abroad Evidence

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