Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30609 
Year of Publication: 
2009
Series/Report no.: 
CESifo Working Paper No. 2891
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Modern trade theory emphasizes firm-level productivity differentials to explain the cross-border activities of non-financial firms. This study tests whether a productivity pecking order also determines international banking activities. Using a novel dataset that contains all German banks’ international activities, we estimate the ordered probability of a presence abroad (extensive margin) and the volume of international assets (intensive margin). Methodologically, we enrich the conventional Heckman selection model to account for the self-selection of banks into different modes of foreign activities using an ordered probit. Four main findings emerge. First, similar to results for non-financial firms, a productivity pecking order drives bank internationalization. Second, only a few non-financial firms engage in international trade, but many banks hold international assets, and only a few large banks engage in foreign direct investment. Third, in addition to productivity, risk factors matter for international banking. Fourth, gravity-type variables have an important impact on international banking activities.
JEL: 
F30
G21
Document Type: 
Working Paper
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