Clustering or Competition? The Foreign Investment Behavior of German Banks
by Claudia M. Buch and Alexander Lipponer
University of Tübingen and Deutsche Bundesbank
Banks often concentrate their foreign direct investment (FDI) in certain
countries. This clustering of activities could reflect either the
attractiveness of a particular country or agglomeration effects. To find out
which of the two phenomena dominates, we need to control for country-specific
factors. We use new bank-level data on German banks’ FDI for the 1996– 2003
period.We test whether the presence of other banks has a positive impact on the
entry of new banks. Once we control for the attractiveness of a country through
fixed effects, the negative impact of competition dominates. Hence, pure
clustering effects are rather unimportant.
JEL Codes: F0, F21.
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