Location Decisions of Foreign Banks and Competitive Advantage

While institutional differences have been found to affect country growth patterns, much has remained unexplained, including how economic actors "overcome" institutional weaknesses and how internationalization helps or hinders development. Banking is an institutionally-intensive activity and the location decision of foreign banks provides a good test of how institutional differences are dealt with and how they may affect economic choices. Specifically, the authors examine whether banks seek out those markets where institutional familiarity provides them with a competitive advantage over other foreign competitor banks. Using bilateral data on banking sector foreign direct investment in all developing countries and controlling for other factors, they find that competitive advantage is an important factor in driving foreign banks' location decisions. The findings suggest that high institutional quality is not necessarily a prerequisite to attract foreign direct investment in banking and that there are specific benefits, as well as risks, to international financial integration between developing countries.

Bibliographic Details

Main Authors:	Claessens, Stijn, Van Horen, Neeltje
Language:	English
Published:	World Bank, Washington, DC 2007-01
Subjects:	ACCOUNTABILITY, ACCOUNTING, AFFILIATES, ASSETS, BANK HOLDING COMPANIES, BANKING SECTOR, BANKING SYSTEM, BENCHMARK, BILATERAL TRADE, CAPITAL FLOWS, COMMERCIAL BANKS, COMPETITIVE ADVANTAGE, COMPETITIVE ADVANTAGES, COMPETITIVENESS, CONSOLIDATION, COOPERATIVE BANKS, DEVELOPING COUNTRIES, DOMESTIC FIRMS, ECONOMIC GROWTH, ECONOMIC SIZE, EXPECTED VALUE, FDI, FINANCIAL DEEPENING, FINANCIAL INSTITUTIONS, FINANCIAL INTEGRATION, FINANCIAL MARKETS, FINANCIAL SECTOR, FINANCIAL SERVICES, FINANCIAL SUPPORT, FOREIGN BANK, FOREIGN BANKS, FOREIGN DIRECT INVESTMENT, FOREIGN ENTRY, FOREIGN FIRMS, FOREIGN INVESTMENT, FOREIGN MARKET, FOREIGN MARKETS, FOREIGN OWNERSHIP, FUTURE RESEARCH, GDP, GDP PER CAPITA, HOST COUNTRIES, HOST COUNTRY, INCOME, INCOME LEVELS, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL DIFFERENCES, INTERNATIONAL BANKING, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL, INVESTMENT CLIMATE, LENDING PRACTICES, LESS DEVELOPED COUNTRIES, LIMITED, M2, MIDDLE EAST, MULTINATIONAL ENTERPRISE, ORGANIZATIONAL FORM, PROFITABILITY, SHAREHOLDER, SMALL BANKS, SMALL BUSINESS, SMES, SUB-SAHARAN AFRICA, SUBSIDIARIES, TAX INCENTIVES, TRADE FLOWS,
Online Access:	http://documents.worldbank.org/curated/en/2007/01/7326823/location-decisions-foreign-banks-competitive-advantage-location-decisions-foreign-banks-competitive-advantage https://hdl.handle.net/10986/6891
Tags:	Add Tag No Tags, Be the first to tag this record!