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This paper studies the pattern and structure of cross-border bilateral financial assetholdings. By utilizing an extended dataset and employing a variant of gravity models,we find strong evidence for the presence of complementarities among bank loans, shortandlong-term debts, and portfolio equity holdings. The complementarities can beexplained by common factors of standard gravity models such as economy size, state ofdevelopment, and information cost proxies, as well as bilateral trade in goods andservices. However, we also find the presence of a direct channel of complementaritiesamong financial asset holdings that cannot be explained by these gravity factors. Weproceed to investigate whether the complementarities can be characterized by themodels that predict a special role of banks in alleviating information asymmetry. Wefind supporting evidence for this hypothesis in that international bank lending tends toincrease the volume of portfolio asset holdings. This acceleration effect of bank lendingis stronger for destination countries with higher degrees of ‘law and order,’ whichsuggests that cross-border bank lending may not lead to capital market integration,despite reduced information cost, if there is no appropriate infrastructure to facilitateportfolio investment. By investigating the structure of bilateral asset holdings, we alsofind positive evidence for the information role of banks. The share of bank lendingdecreases with increasing state of development of destination countries measured by percapita GDP and human capital accumulation, but increases with increasing distance,suggesting that information cost may play an important role in determining the structureof cross-border asset holdings.

Item Type: MPRA Paper -

Original Title: Complementarity among International Asset Holdings: Do Banks Have a Special Role?-

Language: English-

Keywords: Cross-border asset holdings; Financial integration; Bank lending-

Subjects: F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic IntegrationF - International Economics > F1 - Trade > F15 - Economic Integration-

Autor: Hahm, Joon-Ho


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