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Title:Banks in Space: Does Distance Really Affect Cross-Border Banking? PDF Logo
Authors:Neugebauer, Katja
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Risk Taking and Productivity in International Banking E7-V3
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 crosssection regressions for each year. I find strong evidence for a spatial dimension in cross-border banking. Furthermore, the direct effect of distance vanishes when applying spatial econometric techniques.
Subjects:spatial econometrics
gravity equation
banking market integration
distance puzzle
JEL:G21
E44
F30
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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