The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal...
-
Upload
theodore-carter -
Category
Documents
-
view
224 -
download
0
Transcript of The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal...
![Page 1: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/1.jpg)
The Role of Foreign Banks in Trade
Stijn Claessens (Federal Reserve Board and CEPR)
Omar Hassib (Maastricht University)
Neeltje van Horen (De Nederlandsche Bank and CEPR)
Conference "FINANCE, CAPITAL REALLOCATION AND
GROWTH"23-24 October 2015, St. Gallen
Disclaimer: This presentation represents our own views and not necessarily those of the Federal Reserve Board of Governors, De Nederlandsche Bank, the Eurosystem, or their staff.
![Page 2: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/2.jpg)
Motivation
Global financial crisis led to a focus on understanding the risks of internationally active banks
Here focus on potentially important benefit: the role of foreign banks in financing international trade
Specifically, examine whether the local presence of foreign banks (i.e., “brick and mortar” operations) boosts exports
![Page 3: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/3.jpg)
Main take-away
Foreign banks do facilitate trade Especially when from importing country Especially when global banks active in trade finance invest in
(financially) less developed countries
Suggests foreign banks have important benefits for real economy
![Page 4: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/4.jpg)
Why does finance matter (esp.) for trade?
Substantial upfront fixed costs, investments → external financing needs
Long time lags associated with international trade imply high(er) need for working capital financing
Exporters have limited capacity to evaluate (default) risks and turn to banks for payment insurance and guarantees
Ample empirical evidence that finance facilitates trade But still open question whether type of bank (domestic or
foreign) matters
![Page 5: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/5.jpg)
Why could foreign banks matter for trade?
Foreign banks can improve access to finance Direct: can access (additional) funding through parent banks
Indirect: introduce new, better technologies and increase competition increases quality and reduces the costs of financial intermediation
Caveat: for certain firms and in certain countries
This should especially benefit firms that (want to) trade
![Page 6: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/6.jpg)
Why could foreign banks matter for trade?
Can reduce risks specific to firms that trade Better able to deal with enforcement of international contracts and
provide additional insurance
Better able to assess risk at both sides of the transaction (importer and exporter) as it suffers less from asymmetric information
Especially foreign banks from importing country
Increases willingness to lend to firms that trade
![Page 7: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/7.jpg)
Why could foreign banks matter for trade?
Economies of scale in trade finance: specialized business, mostly done by large, globally active banks, with networks
Specialized products (i.e., letters of credit), hedging currency risk
Expect local affiliates of these banks to have advantages providing trade-related financial products to existing and new firms
Especially compared to domestic banks in less developed countries
![Page 8: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/8.jpg)
Hypothesis & approach
Does the presence of foreign banks have a positive impact on export over and above general financial sector development?
Especially benefit sectors with high need of external finance?
Additionally: Do effects vary by home and exporting country?; and Do some foreign banks help more?
Combine detailed data on bilateral, sectoral trade with bilateral data on foreign bank presence across 95 exporting and 122 importing countries between 1995 and 2007
Two approaches: panel and event study
Exploit two important facts
![Page 9: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/9.jpg)
1. Foreign bank presence varies importantly over time and across countries
![Page 10: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/10.jpg)
2. Little relationship between financial sector development and presence of foreign banks
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 10
0.5
1
1.5
2
2.5
3
Foreign bank assets/Total bank assets
Pri
vate
cre
dit/
GD
P
![Page 11: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/11.jpg)
Preview of findings
Panel analysis: Positive relationship between share of foreign banks and exports in sectors more dependent on external finance (controlling for financial development)
Impact stronger for foreign banks from importing country
Event study: Entry of a foreign bank from the importing country boosts bilateral exports more in sectors more dependent on external finance
Impact especially strong when banks active in trade finance invest in underdeveloped countries
Indicates that (transfer of) specialized knowledge and technology for trade financing is important
![Page 12: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/12.jpg)
Literature
![Page 13: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/13.jpg)
Three sets of related literature
1) Impact of foreign banks Claessens, Demirguc-Kunt & Huizinga, 2001; Clarke, Cull, Martinez Peria & Sanches, 2003; Demirguc-Kunt, Laeven & Levine, 2004; Detragiache, Gupta & Tressel, 2008; Bruno & Hauswald, 2013; Claessens & Van Horen, 2014
Our paper: presence of foreign banks has beneficial impact on real economy by facilitating trade, but country characteristics matter
2) Trade and financeKletzer & Bardhan, 1987; Beck, 2002, 2003; Greenaway, Guariglia & Kneller, 2007; Manova, 2008, 2013; Berman & Hericourt, 2010; Minetti and Zhu, 2011; Becker, Chen & Greenberg, 2013; Hale, Candelaria, Caballero & Borisov, 2013; Bronzini & D’Ignazio, 2013
Our paper: the type of bank (foreign or domestic owned) matters importantly
3) Finance and growthKing and Levine, 1993; Jayaratne & Strahan 1996; Demirguc-Kunt & Maksimovic, 1998, Levine & Zervos, 1998; Rajan & Zingales, 1998; Michalski & Ors, 2012
Our paper: global financial integration, through local presence of foreign banks, can generate economic growth by facilitating international trade
![Page 14: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/14.jpg)
Data
![Page 15: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/15.jpg)
Data
We need to combine several data sources Sectoral, bilateral trade data Sectoral data on external finance dependency Bilateral data on foreign bank presence
![Page 16: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/16.jpg)
Trade & industry data
Bilateral trade flows at sectoral level (UN Comtrade) 134 countries 28 manufacturing sectors (3-digit ISIC industry level) 1995-2007 (excluding global financial crisis)
Differentiate between sectors with (intrinsic) high and low need for external finance
External finance dependency: fraction of total capital expenditure not financed by internal cash flows (Rajan and Zingales, 1998)
Based on data for all publicly-listed US companies available in Compustat averaged over 1986-1995 (Manova, 2013)
![Page 17: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/17.jpg)
Foreign bank data
Bank ownership database (Claessens and Van Horen, 2014): Ownership information of 5,324 banks active for at least one year over
1995-2009 in 137 countries Bank foreign owned if > 50% shares held by foreigners If foreign, know home country of majority foreign shareholder Data matched to Bankscope for balance sheet information
Excluding offshore centers and countries with <60% banks asset info available: 95 exporting and 122 importing countries
![Page 18: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/18.jpg)
Foreign bank data
Bank ownership database has two important features:1) Ownership information is time-varying
• Know the importance of foreign banks in financial intermediation for each year in sample period
• Exploit in panel analysis
2) For each foreign bank the country in which the parent is headquartered is known• Know exact year when bank from importing country for first time
entered exporting country• Exploit in event study and to examine channels through which
foreign banks facilitate trade
![Page 19: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/19.jpg)
Some numbers
Trade (2007) On average country exports to over 70 countries when exporting in
sector Average bilateral export: 1.6 billion USD (median 76 million USD) In 53% of sector-pairs trade takes place
Foreign banks (2007) 1,043 foreign banks headquartered in 77 different home countries Importance foreign banks ranges from 0 to 100 percent On average, 11 foreign banks from 6 different home countries In 78 percent of exporting-importing pairs at least one foreign bank
present; in 6 percent bank from importing country Number of entries per exporting country ranges from 0 to 39, average 7
![Page 20: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/20.jpg)
The role of foreign banks in trade: panel analysis
![Page 21: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/21.jpg)
Panel analysis
Aim: to examine whether a higher presence of foreign banks is associated with a higher level of exports
Identification: allow the impact of foreign bank presence to differ with respect to sector dependency on external finance
Control for all time-(in)variant exporting country characteristics that can simultaneously influence foreign bank presence and exports
![Page 22: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/22.jpg)
Dependent & main explanatory variables
Dependent variable: log of value of exports from country i to country j in 3-digit ISIC sector s
in year t
Foreign bank presence (FBi,t): Asset share of all foreign banks active in exporting country i at time t
(preferred, but only available 2005-2007) Dummy if at least one foreign bank present in country i at time t Share in numbers
Importing country foreign bank presence (IFBi,j,t): Same as above, but only banks from importing country included
![Page 23: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/23.jpg)
Control variables & methodology
Control variables: Financial development (private credit/GDP) interacted with sectoral
external finance dependency Fixed effects: exporter-year, importer-year and industry Distance between exporter and importer country
OLS, standard errors clustered by exporter-importer pair
![Page 24: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/24.jpg)
Empirical model
𝑙𝑛𝐸 𝑖𝑗𝑠𝑡=𝛽1𝐹𝐵𝑖𝑡 ∙𝑒𝑥𝑡𝑓𝑖𝑛𝑠+𝛾 1 𝐼 𝐹𝐵𝑖 𝑗 𝑡 ∙𝑒𝑥𝑡𝑓𝑖𝑛𝑠+𝛾2 𝐼 𝐹𝐵𝑖 𝑗 𝑡+𝛿1𝐹𝐷 𝑖𝑡 ∙𝑒𝑥𝑡𝑓𝑖𝑛𝑠+𝜅′ 𝑋 𝑡+𝜖 𝑖𝑡+𝜇 𝑗𝑡+𝜑 𝑠+𝜂𝑖𝑗𝑠𝑡 ,
![Page 25: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/25.jpg)
Baseline results
1995-2007 2005-2007 1995-2007 2005-2007
dummy number share asset share dummy number share asset share [1] [2] [3] [4] [5] [6]
FB * extfin 0.181*** 0.111* 0.730*** 0.178*** 0.098 0.724***
(0.052) (0.067) (0.062) (0.052) (0.068) (0.063)
IFB * extfin 0.200*** 2.816*** 1.298***
(0.054) (0.621) (0.392)
IFB 0.520*** 5.519*** 2.859***
(0.056) (0.658) (0.544)
FD * extfin 1.732*** 1.736*** 1.679*** 1.733*** 1.741*** 1.678***
(0.028) (0.028) (0.035) (0.028) (0.028) (0.035)
Distance -1.712*** -1.712*** -1.838*** -1.667*** -1.679*** -1.817***
(0.023) (0.023) (0.026) (0.023) (0.023) (0.026)
Fixed effects Exporter-year, importer-year and industry
Obs 1,726,604 1,726,604 476,551 1,726,604 1,726,604 473,162
R2 0.559 0.559 0.575 0.561 0.561 0.575
![Page 26: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/26.jpg)
Baseline results
1995-2007 2005-2007 1995-2007 2005-2007
dummy number share asset share dummy number share asset share [1] [2] [3] [4] [5] [6]
FB * extfin 0.181*** 0.111* 0.730*** 0.178*** 0.098 0.724***
(0.052) (0.067) (0.062) (0.052) (0.068) (0.063)
IFB * extfin 0.200*** 2.816*** 1.298***
(0.054) (0.621) (0.392)
IFB 0.520*** 5.519*** 2.859***
(0.056) (0.658) (0.544)
FD * extfin 1.732*** 1.736*** 1.679*** 1.733*** 1.741*** 1.678***
(0.028) (0.028) (0.035) (0.028) (0.028) (0.035)
Distance -1.712*** -1.712*** -1.838*** -1.667*** -1.679*** -1.817***
(0.023) (0.023) (0.026) (0.023) (0.023) (0.026)
Fixed effects Exporter-year, importer-year and industry
Obs 1,726,604 1,726,604 476,551 1,726,604 1,726,604 473,162
R2 0.559 0.559 0.575 0.561 0.561 0.575
Countries with higher share of foreign banks export relatively more in sectors more dependent on external finance
![Page 27: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/27.jpg)
Results
1995-2007 2005-2007 1995-2007 2005-2007
dummy number share asset share dummy number share asset share [1] [2] [3] [4] [5] [6]
FB * extfin 0.181*** 0.111* 0.730*** 0.178*** 0.098 0.724***
(0.052) (0.067) (0.062) (0.052) (0.068) (0.063)
IFB * extfin 0.200*** 2.816*** 1.298***
(0.054) (0.621) (0.392)
IFB 0.520*** 5.519*** 2.859***
(0.056) (0.658) (0.544)
FD * extfin 1.732*** 1.736*** 1.679*** 1.733*** 1.741*** 1.678***
(0.028) (0.028) (0.035) (0.028) (0.028) (0.035)
Distance -1.712*** -1.712*** -1.838*** -1.667*** -1.679*** -1.817***
(0.023) (0.023) (0.026) (0.023) (0.023) (0.026)
Fixed effects Exporter-year, importer-year and industry
Obs 1,726,604 1,726,604 476,551 1,726,604 1,726,604 473,162
R2 0.559 0.559 0.575 0.561 0.561 0.575
Stronger impact when foreign banks headquartered in importing country
![Page 28: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/28.jpg)
Results
1995-2007 2005-2007 1995-2007 2005-2007
dummy number share asset share dummy number share asset share [1] [2] [3] [4] [5] [6]
FB * extfin 0.181*** 0.111* 0.730*** 0.178*** 0.098 0.724***
(0.052) (0.067) (0.062) (0.052) (0.068) (0.063)
IFB * extfin 0.200*** 2.816*** 1.298***
(0.054) (0.621) (0.392)
IFB 0.520*** 5.519*** 2.859***
(0.056) (0.658) (0.544)
FD * extfin 1.732*** 1.736*** 1.679*** 1.733*** 1.741*** 1.678***
(0.028) (0.028) (0.035) (0.028) (0.028) (0.035)
Distance -1.712*** -1.712*** -1.838*** -1.667*** -1.679*** -1.817***
(0.023) (0.023) (0.026) (0.023) (0.023) (0.026)
Fixed effects Exporter-year, importer-year and industry
Obs 1,726,604 1,726,604 476,551 1,726,604 1,726,604 473,162
R2 0.559 0.559 0.575 0.561 0.561 0.575
And importantly: effects over and above the impact of domestic financial development
![Page 29: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/29.jpg)
Economic significance
1995-2007 2005-2007 1995-2007 2005-2007
dummy number share asset share dummy number share asset share [1] [2] [3] [4] [5] [6]
FB * extfin 0.181*** 0.111* 0.730*** 0.178*** 0.098 0.724***
(0.052) (0.067) (0.062) (0.052) (0.068) (0.063)
IFB * extfin 0.200*** 2.816*** 1.298***
(0.054) (0.621) (0.392)
IFB 0.520*** 5.519*** 2.859***
(0.056) (0.658) (0.544)
FD * extfin 1.732*** 1.736*** 1.679*** 1.733*** 1.741*** 1.678***
(0.028) (0.028) (0.035) (0.028) (0.028) (0.035)
Distance -1.712*** -1.712*** -1.838*** -1.667*** -1.679*** -1.817***
(0.023) (0.023) (0.026) (0.023) (0.023) (0.026)
Fixed effects Exporter-year, importer-year and industry
Obs 1,726,604 1,726,604 476,551 1,726,604 1,726,604 473,162
R2 0.559 0.559 0.575 0.561 0.561 0.575
One std. dev increase in FB implies exports at 75th percentile of external finance dependency are 7.3 pp higher than in sector at 25th percentile
For IFB: 9.1 pp Comparison: for FD 29.4 pp
![Page 30: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/30.jpg)
Robustness tests
Adding importer-year-industry etc. fixed effects: To control for sectoral differences in competitiveness and demand at
the importer, exporter level that may affect export performance
Adding bilateral and bilateral-year fixed effects To control for any residual bilateral variations that affect exports
Control for other country characteristics that can interact with sectoral characteristics to affect exports:
Corruption and rule of law Country factor endowments (human capital, physical capital and
natural resources)
Control for other financial linkages: Stock of FDI and cross-border liabilities (interacted) Make sure not picking up other types of financial integration
![Page 31: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/31.jpg)
Robustness tests
Control for domestic output (at sector level): To make sure our results are not picking up an increase in domestic
production but really a scaling-up of exports
Cluster by exporter-industry: Errors might be correlated within the exporting country and
specifically within each sector in each country. Make sure results not affected by specific choice of clustering
Studying extensive margin: Probit using dummy whether there is export from country i to
country j in sector s at time t Studying intensive plus extensive margin:
Poisson using value of exports from country i to country j in sector s at time t (keep zeros: combine extensive and intensive margins)
![Page 32: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/32.jpg)
Robustness of baseline results
Importer * year * industry FE Pair FE Institutions
Factor endowments
Financial integration
Domestic production
Cluster by exporter-industry
Extensive margin
Intensive and extensive margin
[2] [3] [4] [5] [6] [7] [8] [9] [10]
FB * extfin 0.776*** 0.824*** 0.236*** 0.506*** 0.602*** 0.488*** 0.724*** 0.216*** 1.079***
(0.062) (0.061) (0.063) (0.064) (0.075) (0.068) (0.252) (0.0263) (0.289)
IFB * extfin 0.883** 0.667* 1.568*** 1.311*** 1.369*** 0.756 1.298** 1.962*** 1.813
(0.401) (0.386) (0.353) (0.403) (0.390) (0.527) (0.553) (0.669) (1.230)
IFB 3.027*** 2.783*** 2.472*** 2.766*** 2.611*** 2.859*** 2.823*** 0.818
(0.547) (0.523) (0.534) (0.545) (0.535) (0.241) (0.383) (0.510)
FD * extfin 1.668*** 1.617*** 0.452*** 1.472*** 1.596*** 1.132*** 1.678*** 0.753*** 0.854***
(0.035) (0.035) (0.055) (0.036) (0.040) (0.037) (0.155) (0.0228) (0.151)
Distance -1.835*** -1.820*** -1.820*** -1.815*** -1.844*** -1.817*** -0.962*** -0.954***
(0.027) (0.026) (0.027) (0.027) (0.030) (0.019) (0.0169) (0.0322)
Corruption * extfin -0.316***
(0.063)
Rule of law * extfin 1.203***
(0.070)
Human capital * 1.857***
industry H intensity (0.074)
Physical capital * -0.371
industry K intensity (0.244)
Natural resources * 0.034***
industry N intensity (0.002)
FDI * extfin 0.178***
(0.000)
Cross-border * extfin -0.027
(0.032)
Domestic production 0.417***
(0.010)
Fixed effects
Obs 473,162 473,162 473,162 456,299 470,661 346,368 473,162 897,848 897,848
(Psuedo) R2 0.600 0.670 0.577 0.582 0.576 0.616 0.575 0.519 0.624
Exporter-year, importer-year and industry
![Page 33: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/33.jpg)
The role of foreign banks in trade: event study
![Page 34: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/34.jpg)
Event study
Using cross-sector variation in external financing helps to identify channel, plus all the robustness, but residual concerns on omitted variables may remain
Conduct event study (Trefler, 2004; Manova, 2008) Event: First time a bank from importing country j entered exporting
country i (i.e., establishment of a new bilateral link) Compare bilateral, sectoral exports before and after the event 187 bank entries from 65 importing countries in 76 exporting countries
(between 1995 and 2004)
Identification: impact of entry should again be strongest for sectors more dependent on external finance
![Page 35: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/35.jpg)
Dependent variable & controls
Dependent variable: Growth average exports from country i to country j in sector s between
(t-1, t-3) and (t+1, t+3), where t is year of event
Controls: First-differencing effectively removes all sector-country pair fixed
effects, i.e., already controls for variations in initial conditions at the sector-country pair level at the time of entry
In addition, control for event-year fixed effects
OLS, standard errors double clustered by exporter and importer
![Page 36: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/36.jpg)
∆𝐸 𝑖𝑗𝑠=𝛽1𝑒𝑥𝑡𝑓𝑖𝑛𝑠+𝜖𝑡+𝜂 𝑖𝑗𝑠 ,
Empirical model
![Page 37: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/37.jpg)
Results Event Study
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.346*** 0.194** 0.126**
(0.070) (0.077) (0.053)
Constant 0.271 0.111 0.358**
(0.170) (0.164) (0.147)
Fixed effects event-year fixed effects
Obs 3,806 3,217 968
(Pseudo-)R2 0.033 0.026 -
![Page 38: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/38.jpg)
Results Event Study
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.346*** 0.194** 0.126**
(0.070) (0.077) (0.053)
Constant 0.271 0.111 0.358**
(0.170) (0.164) (0.147)
Fixed effects event-year fixed effects
Obs 3,806 3,217 968
(Pseudo-)R2 0.033 0.026 -
Bilateral exports in sectors more dependent on external finance grow faster in three years after entry of bank from importing country
Economic significance: exports in sectors in 75th percentile of distribution grow 11.7 pp faster compared to sectors in 25th percentile
![Page 39: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/39.jpg)
Results Event Study
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.346*** 0.194** 0.126**
(0.070) (0.077) (0.053)
Constant 0.271 0.111 0.358**
(0.170) (0.164) (0.147)
Fixed effects event-year fixed effects
Obs 3,806 3,217 968
(Pseudo-)R2 0.033 0.026 -
Effect is maintained when controlling for pre-entry trend
![Page 40: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/40.jpg)
Results Event Study
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.346*** 0.194** 0.126**
(0.070) (0.077) (0.053)
Constant 0.271 0.111 0.358**
(0.170) (0.164) (0.147)
Fixed effects event-year fixed effects
Obs 3,806 3,217 968
(Pseudo-)R2 0.033 0.026 -
Entry also increases the likelihood that exports start taking place more in external finance dependent sectors
![Page 41: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/41.jpg)
Robustness
Excluding exporting countries that experienced a banking crisis within 3 years before entry
Excluding exporting countries that liberalized equity markets around the year of entry
Measuring growth between year before and 4 years after entry
![Page 42: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/42.jpg)
Indirect event study
Still possible lingering concerns, including about reverse causality, endogeneity
Assess impact of entry on exports by countries indirectly linked. Example:
US bank enters Brazil for first time US bank already present in Canada but no Canadian banks in Brazil Entry creates an indirect link between Brazil and Canada
Exporters in Brazil benefit from US presence in Brazil and in Canada
Nearly pure exogenous
Dependent variable: Growth average exports from country i to country m (m≠j) in sector s
between (t-1, t-3) and (t+1, t+3), where t is year bank from country j invests in country i and m is other country where banks from country j are already present at time t
![Page 43: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/43.jpg)
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.222*** 0.152*** 0.068***
(0.047) (0.054) (0.012)
Constant 0.374*** -0.350* -1.081***
(0.097) (0.186) (0.155)
Fixed effects event-year fixed effects
Obs 15,009 12,666 14,279
(Pseudo-)R2 0.027 0.025 -
Results indirect event study
![Page 44: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/44.jpg)
BaseControlling for pre-
entry trend Extensive margin
[1] [2] [3]
Extfin 0.222*** 0.152*** 0.068***
(0.047) (0.054) (0.012)
Constant 0.374*** -0.350* -1.081***
(0.097) (0.186) (0.155)
Fixed effects event-year fixed effects
Obs 15,009 12,666 14,279
(Pseudo-)R2 0.027 0.025 -
Results indirect event study
Sectors more dependent on external finance experience higher export growth (also when controlling for pre-entry trend)
And increased likelihood of exporting in sectors more dependent on external finance
![Page 45: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/45.jpg)
The role of foreign banks in trade: where and how?
![Page 46: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/46.jpg)
Where and how do foreign banks affect trade?
Exploit that exporting countries and banks differ substantially Countries: several dimensions
Financial development; importance foreign banks; institutional environment; distance
Split countries in three groups using 33th and 66th percentile
Banks: globally active in trade finance; and not active Trade finance banks more likely have relevant specialized skills Parent bank in top 30 based on total syndicated lending for trade finance
purposes over period 1996-2004 (Dealogic) 23 parent banks, responsible for 30 percent of events
![Page 47: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/47.jpg)
All entries
[1] [2] [3] [4] [5] [6]
Extfin 0.347*** 0.142 0.696*** 0.398*** 0.195* 1.067**
(0.070) (0.095) (0.154) (0.097) (0.110) (0.437)
Extfin * FD low 0.464
(0.308)
Extfin * FD int 0.342
(0.218)
Extfin * FB low -0.474**
(0.211)
Extfin * FB int -0.540**
(0.236)
Extfin * Enf bad -0.352
(0.246)
Extfin * Enf weak 0.090
(0.176)
Extfin * Info bad 0.267
(0.226)
Extfin * Info weak 0.217
(0.223)
Extfin * Distance -0.096*
(0.057)
Fixed effects event-year fixed effects
Obs 3,805 3,805 3,805 3,805 3,805 3,805
R2 0.033 0.038 0.039 0.037 0.035 0.035
Where? Country characteristics
![Page 48: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/48.jpg)
All entries
[1] [2] [3] [4] [5] [6]
Extfin 0.347*** 0.142 0.696*** 0.398*** 0.195* 1.067**
(0.070) (0.095) (0.154) (0.097) (0.110) (0.437)
Extfin * FD low 0.464
(0.308)
Extfin * FD int 0.342
(0.218)
Extfin * FB low -0.474**
(0.211)
Extfin * FB int -0.540**
(0.236)
Extfin * Enf bad -0.352
(0.246)
Extfin * Enf weak 0.090
(0.176)
Extfin * Info bad 0.267
(0.226)
Extfin * Info weak 0.217
(0.223)
Extfin * Distance -0.096*
(0.057)
Fixed effects event-year fixed effects
Obs 3,805 3,805 3,805 3,805 3,805 3,805
R2 0.033 0.038 0.039 0.037 0.035 0.035
Where? Country characteristics
Foreign banks boost exports more when important in financial intermediation and when investing in countries close by
![Page 49: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/49.jpg)
Entries by important trade financers
[7] [8] [9] [10] [11] [12]
Extfin 0.215** -0.005 0.459*** 0.209* -0.027 0.026
(0.087) (0.089) (0.157) (0.122) (0.074) (0.399)
Extfin * FD low 0.916***
(0.207)
Extfin * FD int 0.235***
(0.030)
Extfin * FB low -0.374**
(0.185)
Extfin * FB int -0.243
(0.158)
Extfin * Enf bad -0.195
(0.194)
Extfin * Enf weak 0.162
(0.164)
Extfin * Info bad 0.473**
(0.203)
Extfin * Info weak 0.385***
(0.140)
Extfin * Distance 0.024
(0.050)
event-year fixed effects
Obs 1,194 1,194 1,194 1,194 1,194 1,194
R2 0.052 0.069 0.056 0.054 0.059 0.052
How? Trade finance banks
![Page 50: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/50.jpg)
Entries by important trade financers
[7] [8] [9] [10] [11] [12]
Extfin 0.215** -0.005 0.459*** 0.209* -0.027 0.026
(0.087) (0.089) (0.157) (0.122) (0.074) (0.399)
Extfin * FD low 0.916***
(0.207)
Extfin * FD int 0.235***
(0.030)
Extfin * FB low -0.374**
(0.185)
Extfin * FB int -0.243
(0.158)
Extfin * Enf bad -0.195
(0.194)
Extfin * Enf weak 0.162
(0.164)
Extfin * Info bad 0.473**
(0.203)
Extfin * Info weak 0.385***
(0.140)
Extfin * Distance 0.024
(0.050)
event-year fixed effects
Obs 1,194 1,194 1,194 1,194 1,194 1,194
R2 0.052 0.069 0.056 0.054 0.059 0.052
Where and How? Trade finance banks
Trade finance banks especially beneficial in countries with low financial development and weak creditor information
Suggests (transfer of) specialized technology and know-how is important reason why foreign banks facilitate trade
![Page 51: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/51.jpg)
Where and How? Trade Banks
Globally active foreign banks Tend to be especially beneficial in exporting countries with low
level of financial development• Suggests that (transfer of) specialized knowledge and technology for
trade financing is important
Impact especially strong in exporting countries that lack creditor information• Suggests these banks can help overcome information problems
Impact not affected by strength of contracting environment and distance between exporting and importing country
![Page 52: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/52.jpg)
Entries by non-trade financers
[13] [14] [15] [16] [17] [18]
Extfin 0.401*** 0.235* 0.792*** 0.478*** 0.343** 1.440**
(0.086) (0.139) (0.175) (0.118) (0.148) (0.574)
Extfin * FD low 0.252
(0.423)
Extfin * FD int 0.294
(0.285)
Extfin * FB low -0.503*
(0.262)
Extfin * FB int -0.701**
(0.298)
Extfin * Enf bad -0.419
(0.295)
Extfin * Enf weak 0.078
(0.205)
Extfin * Info bad 0.114
(0.284)
Extfin * Info weak 0.068
(0.309)
Extfin * Distance -0.141*
(0.079)
event-year fixed effects
Obs 2,611 2,611 2,611 2,611 2,611 2,611
R2 0.035 0.037 0.043 0.039 0.035 0.037
How? Non-trade finance banks
![Page 53: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/53.jpg)
Entries by non-trade financers
[13] [14] [15] [16] [17] [18]
Extfin 0.401*** 0.235* 0.792*** 0.478*** 0.343** 1.440**
(0.086) (0.139) (0.175) (0.118) (0.148) (0.574)
Extfin * FD low 0.252
(0.423)
Extfin * FD int 0.294
(0.285)
Extfin * FB low -0.503*
(0.262)
Extfin * FB int -0.701**
(0.298)
Extfin * Enf bad -0.419
(0.295)
Extfin * Enf weak 0.078
(0.205)
Extfin * Info bad 0.114
(0.284)
Extfin * Info weak 0.068
(0.309)
Extfin * Distance -0.141*
(0.079)
event-year fixed effects
Obs 2,611 2,611 2,611 2,611 2,611 2,611
R2 0.035 0.037 0.043 0.039 0.035 0.037
Where and How? Non-trade finance banks
Non-trade finance banks can have positive impact, but only when foreign banks sufficiently important and investing in countries close by
Suggests such banks need an environment conducive to foreign banks and be closer by to overcome information and contracting problems, and thereby boost exports
![Page 54: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/54.jpg)
Where and How? Non-Trade Banks
Non-globally active foreign banks Only positive impact if foreign banks sufficiently important in
financial intermediation in exporting country• Suggests that institutions have to be conducive to foreign banks for
these banks to be able to have impact
Level of financial development or creditor information irrelevant, but (very) weak contract enforcement reduces beneficial impact
Beneficial impact diminishes with distance• Foreign banks easier operate in countries that are closer (Mian, 2006)
![Page 55: The Role of Foreign Banks in Trade The Role of Foreign Banks in Trade Stijn Claessens (Federal Reserve Board and CEPR) Omar Hassib (Maastricht University)](https://reader035.fdocuments.in/reader035/viewer/2022062305/5697bfb51a28abf838c9d6b7/html5/thumbnails/55.jpg)
Conclusions
Use unique dataset of bilateral foreign bank presence combined with data on bilateral sector exports for 95 exporting countries and 122 importing countries
Foreign banks do facilitate trade Especially when from importing country Especially when banks active in trade finance invest in (financially)
less developed countries
Suggests foreign banks have important benefits for the real economy
But need to take host country and foreign bank characteristics into account