Where Do Banks Expand Abroad? An Empirical Analysis

36 Pages Posted: 27 Feb 2002

See all articles by Dario Focarelli

Dario Focarelli

ANIA - Italian Association of Insurance Companies; Catholic University of Milan

Alberto F. Pozzolo

Università degli Studi di Roma Tre

Multiple version iconThere are 2 versions of this paper

Abstract

This paper investigates the determinants of the pattern of banks' foreign investment using firm-level data on foreign subsidiaries for a representative sample of 260 large banks from the OECD countries. The empirical analysis shows that measures of the potential profit opportunities in the destination markets are the key factor in determining the choice of banks on where to expand. In particular, banks are more likely to enter host countries where the expected rate of economic growth is higher and the banking system is on average less efficient. Similarly important are the regulatory environment and the characteristics of the banking sector in the country of destination of the investment: foreign banks prefer to enter in markets that are less concentrated and where regulatory restrictions on banking activities are less stringent, possibly revealing that these characteristics entail also the existence of hidden limitations to foreign entry. The degree of economic integration between countries is found instead to be relatively less important in determining banks' decisions.

Keywords: International banking, foreign direct investment

JEL Classification: E30, G21, F21, F23

Suggested Citation

Focarelli, Dario and Pozzolo, Alberto F., Where Do Banks Expand Abroad? An Empirical Analysis. Available at SSRN: https://ssrn.com/abstract=301644 or http://dx.doi.org/10.2139/ssrn.301644

Dario Focarelli (Contact Author)

ANIA - Italian Association of Insurance Companies ( email )

Via di San Nicola da Tolentino, 72
Rome, 00187
Italy
+39.06.32688619 (Phone)
+39.06.91622570 (Fax)

Catholic University of Milan ( email )

Largo Gemelli 1
Milan, MI Milano 20123
Italy

HOME PAGE: http://https://docenti.unicatt.it/ppd2/it/#/it/docenti/71049/dario-focarelli/profilo

Alberto F. Pozzolo

Università degli Studi di Roma Tre ( email )

Via Ostiense 163
Roma, RM 00154
Italy

HOME PAGE: http://www.uniroma3.it/

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