What drives international bank flows? Politics, institutions and other determinants

Arbeitspapier

This paper uses a large panel of bilateral bank flow data to assess how institutions and politics affect international capital -bank in particular- flows. The following key findings emerge: 1) The empirical "gravity" model is the benchmark in explaining the volume of international banking activities. 2) Conditioned on standard gravity factors (distance, GDP, population), well-functioning institutions are a key driving force for international bank flows. Specifically, foreign banks invest substantially more in countries with i) uncorrupt bureaucracies, ii) high-quality legal system, and iii) a non-government controlled banking system. 3) Beyond institutions, politics exert also a firstorder impact. 4) The European Integration process has spurred cross-border banking activities between member states. These results are robust to various econometric methodologies, samples and the potential endogeneity of institutional characteristics. The strong institutions/politics-bank flows nexus has strong implications for asset trade and international macro theories, which have not modelled these relationships explicitly.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 437

Classification and Topics

• Classification: Wirtschaft ; International Lending and Debt Problems ; International Investment; Long-term Capital Movements ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Law and Economics: General
• Subject: banks ; Capital flows ; institutions ; law and finance ; politics ; Internationaler Zahlungsverkehr ; Internationale Bank ; Bankenregulierung ; Institutionelle Infrastruktur ; Gravitationsmodell ; Schätzung ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Papaioannou, Elias
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152871
• Last update: 10.03.2025, 11:45 AM CET