Better the Devil that You Know: Evidence on Entry Costs Faced by Foreign Banks

Arbeitspapier

Institutional and legal differences between countries increase entry costs and reduce the ability of banks to expand abroad. We use bilateral foreign banking data for 176 countries to estimate a gravity model in which bilateral cross-border banking activity is explained, in addition to standard variables, by legal and institutional differences. We find that foreign banking is negatively affected by absolute differences in the legal setup and in basic institutions between source and host countries. Differences in the legal origin, for example, reduce bilateral participation in the banking system by nearly 11 percent. Additionally we do not find strong evidence suggesting asymmetries in adapting to “better” or “worse” institutional/legal environments.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 477

Classification and Topics

• Classification: Wirtschaft
• Subject: Auslandsinvestition ; Internationale Bank ; Institutionelle Infrastruktur ; Gravitationsmodell ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Galindo, Arturo ; Micco, Alejandro ; Serra, César Manuel
• Event: Veröffentlichung
• (who): Inter-American Development Bank, Research Department
• (where): Washington, DC
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/88000
• Last update: 10.03.2025, 11:43 AM CET