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Banks in space: does distance really affect cross-border banking

Neugebauer, Katja (2011) Banks in space: does distance really affect cross-border banking. IAW-Diskussionspapiere (70). IAW, Tübingen, Germany.

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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 atter 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 cross-section regressions for each year. I find strong evidence for a spatial dimension in crossborder banking. Furthermore, the direct effect of distance decreases signficantly when applying spatial econometric techniques.

Item Type: Monograph (Working Paper)
Official URL: http://www.iaw.edu
Additional Information: © 2011 IAW
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
JEL classification: G - Financial Economics > G1 - General Financial Markets > G10 - General
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Research centres and groups > Systemic Risk Centre
Date Deposited: 10 Jun 2014 16:34
Last Modified: 07 Jun 2019 23:26
URI: http://eprints.lse.ac.uk/id/eprint/57025

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