Banking Network Multiplier effects on cross-border bank inflows

Abstract

Correlation of cross-border bank inflows has surged since the mid-1990s. Spatial dependence of the dependent variable is well known to engender bias in estimation when applying traditional estimation approaches to sample data of this type. By applying a spatial econometric model with global push factors or country-specific pull factors as intrinsic shocks, we demonstrate that increased cross-border bank inflows of a certain country strongly amplify self-propagation effects on other countries, constituting the Banking Network Multiplier (BNM) effect. Results reveal a strong core–periphery structure, with the BNM distribution concentrated in the United States and a few countries.