International Trade In Financial Services Research Articles

Impact of terror on international trade in financial services: Does the development of financial institutions matter?

AbstractWe examine the impact of terror on international trade in financial services and the role of financial institutions in alleviating this impact. Using a sample of 67 countries from 2000 to 2020, we find that a 10% increase in the number of terrorist incidents in the importer and/or the exporter results, on average, in a 1.77–2.05% annual reduction in their bilateral financial service trade which is more economically significant than what has been documented for trade in commodities. Top exporters and importers of financial services, however, are less affected by the incidence of terrorism. Confirming the critically important role of systemic stability, we further find that financial institutions' stability (measured by the Z score) is the most powerful factor in mitigating the detrimental impact of terrorism on trade. There is also some limited evidence that exporting countries where financial institutions exhibit more efficiency (measured as the ratio of overhead costs to total assets) cope better with terrorism.

Liberalisation of Banking Services Under the Framework of Asean Economic Community: an Indonesian Perspective

Among the ASEAN members, compared to other members, Indonesia is relatively more liberal in opening up international trade in financial services, especially in banking sector. Through its submission of CIO to the WTO in 2005, Indonesia to some degree offered certain liberalization of banking sector, together with some other services governed under the GATS. On the other hand, other members of ASEAN show their carefulness in liberalizing their banking sectors. As consequence, on one hand foreign banks have occupied nearly 50% of the Indonesian banking industry, and there are only a few units from Indonesia’s domestic banks that present in its ASEAN neighbours, on the other hand. Using normative method, this research elaborates on how Indonesia should strike a balanced stand between its over-liberalized banking sector and the reluctance of other members, while maintaining the GATS principle of “progressive development.” The authors concludes that one of the ways for Indonesia to flip the odds to be in its favour is by urging the implementation of the reciprocity principle in banking services in ASEAN, which additionally, will also stimulate the liberalisation schedule of the latter.

Customs clearance of goods in export mode: theoretical aspects

Methods. The results are obtained through the use of the following methods: analysis – when studying and processing statistical data and determining the share of exports of financial services from total world service export; synthesis – when identifying essential signs of the impact of the pandemic on demand for financial services; generalization – when determining global trends in the global market of financial services and changes in the practical, legislative environment of Ukraine in the direction of modernizing the regulation of the Ukrainian financial services market. Results. It is determined, that the current stage of evolution of international financial services markets is characterized by the greatest intensification of financial flows. The composition of financial services in accordance with international norms and Ukrainian legislation is defined. It is emphasized that in recent decades, international trade in financial services has significantly intensified, becoming global in nature. The factors of intensification of international trade in financial services, which are becoming global, are determined. It is substantiated that 2020 was in many respects an unprecedented year for financial markets. The lockdowns because of the COVID-19 resulted in an aggressive monetary and fiscal reaction from the Central Bank and governments of developed markets. As a result, in 2020, the economy, production of goods and volume of services provided fell sharply due to the pandemic of the COVID-19 and related restrictions (about 38 countries have applied restrictive measures to trade in services). Financial services, on the contrary, continued to grow. The financial services market has reacted to the restrictions due to the COVID-19 pandemic by moving online rapidly. It is noted that technology in any form has always been the driving force of change, and in these uncertain times it is particularly relevant. The necessity of structuring the major trends of development of the world market of financial services is grounded. Novelty. The factors changing the conditions of functioning of the financial services market under Covid-19 pandemic are identified. Practical value. The authors have systematized the most current technological trends in the development of the global financial services market and changes in the practical, legislative environment of Ukraine in the direction of bringing it into compliance with the EU legislation.

Multinational banks in regulated markets: Is financial integration desirable?

AbstractA core question regarding the increasing share of international trade in financial services is whether this causes banks to take more or fewer risks. We study this issue in a setting where two multinational banks engage in duopoly competition for their lending in two regional markets. Each bank affiliate can choose both the lending volume and the level of monitoring, and hence risk‐taking, where the risk of bank failure is partly borne by taxpayers in the bank affiliate's host country. Governments choose minimum capital requirements to optimally solve the trade‐off between higher lending volumes and consumer surplus, and the expected tax losses faced by taxpayers. In this setting, we consider two types of financial integration. A reduction in the transaction costs of cross‐border banking increases risk‐taking by banks, harming taxpayers and potentially overall welfare. In contrast, a reduction in the costs of screening foreign firms reduces banks' risk‐taking and is beneficial for consumers and taxpayers alike.

Terror and its Effect on International Trade in Financial Services Does the Development of Financial Institutions Matter?

Using a sample of 67 countries from 2000 to 2014, we find robust evidence that terrorist incidents in either the importer or the exporter territory significantly reduce bilateral trade in financial services. A 10% increase in the number of terrorist incidents in a trading pair, which is typically of a small and non-fatal scale, results on average in a 1.32% to 1.72% annual reduction in bilateral financial service trade. The impact of fatal terrorist incidents is, unsurprisingly, twice more severe while non-fatal terrorist incidents alone have no significant impact. Importantly, we find that countries where financial institutions exhibit more depth (measured as the ratio of total assets held by deposit taking institutions to GDP) and more stability (measured by the z-score) export more financial services and cope much better with terrorism.

Ethiopia’s WTO Accession and Financial Services Liberalization: Striking the Balance between Trade Liberalization and Domestic Policy Space

This article examines some of the main provisions of the General Agreement on Trade in Services (GATS) and the Annex on Financial Services to evaluate its impact on domestic financial regulation and macroeconomic policy. Inparticular, it analyzes whether Ethiopia can – upon accession and within the WTO’s GATS framework – achieve the objective of liberalizing internationaltrade in financial services while maintaining adequate domestic regulatory institutions and the normative framework needed in this regard. The articleinvestigates whether GATS provides a flexible framework for Ethiopia to negotiate liberalization commitments while at the same time preserving asufficient level of domestic regulatory space to achieve financial and economicstability.Key words: WTO accession, GATS, financial liberalization, domestic policy space, trade liberalization, Ethiopia

UNVEILING THE DETERMINANTS OF THE MAURITIAN BANKING SECTOR FDI.

ABSTRACT This study attempts to analyze and model the significant components of international trade in financial services, namely, FDI in banking for Mauritius for a period of 1970-2010 in a Vector Autoregressive (VAR) approach. Results from the analysis reveal the causal ordering between FDI and its other determinants both in the long run and short run. The empirical results of FDI in banking indicate that FDI in non banking sector, human capital, trade openness, bank’s foreign assets, and cost of capital are the major channels of FDI in banking sector. Keywords FDI, Banking, Vector Error Correction Model (VECM).

Relationship of International Trade in Financial Services and Economic Growth: The Case of China

International financial services, the financial services trade that is conducted through the financial service sectors, play a very important role in a nation economic growth. Especially the modes of cross-border supply and commercial presence have been the new economics growth point. Multiple regression models are built up based on time-series data of financial service trade and economic growth in China, then co-integration test and Granger test are used to analyze their relationship. The results are that there is long-run equilibrium relationship between the two modes of financial service trade, and both of them improve the economics growth. At last, some suggestions are given for the coordinated development of financial service trade and economic growth.

Banking on China's WTO Commitments: 'Same Bed, Different Dreams' in China's Financial Services Sector

Foreign banks and the Chinese Government have different dreams about the business opportunities and obligations that arise under China's World Trade Organization (WTO) commitments on financial services. This article provides an overview of China's banking sector reforms and its gradual opening to foreign participation in the context of General Agreement on Trade in Services (GATS) rules governing international trade in financial services and the obligations that apply since China's WTO accession in December 2001. The article highlights the contradictory interpretations that China and other Members have issued regarding China's GATS commitments and provides a framework for assessing the WTO consistency of China's banking measures. An analysis is conducted under this framework to evaluate whether China has fully implemented its GATS commitments on (i) the acquisition of Chinese banks by foreign financial institutions, (ii) legitimate ‘prudential regulation’ in the banking sector, and (iii) full market access for credit card and electronic payment services. Notwithstanding the apparent complexity of GATS rules, the article concludes that the WTO legal framework supports the case for increased access to China's financial services market consistent with its GATS commitments, and fully consistent with China's plans for continuing domestic growth and its medium-term financial services export interests.

Financial services liberalization and international integration in South Eastern Europe

The first part of this paper analyses the regulatory framework for international trade in financial services within the auspices of the World Trade Organization (WTO), with special attention paid to the open issues including the scope of prudential measures and capital mobility limitations. The process of the international integration of the South Eastern Europe (SEE) countries is mainly dictated by their goal of EU integration. With regard to the services' sectors, a major liberalization step on the way is WTO accession. Of the countries in the region only Serbia, Bosnia and Herzegovina and Montenegro are still not WTO members and in order to become members significant liberalization commitments will be demanded of them. For this reason the second part of the paper deals with concrete financial liberalization commitments undertaken by the original WTO members in SEE and the newly WTO acceded SEE member countries. The last part of the paper provides a quantitative analysis of these commitments by means of the measurement of liberalization indices in the banking sectors in SEE countries. This is to provide a general idea of the scope of liberalization that may be required from a SEE country in order to achieve WTO membership on the road to EU integration.

International trade in financial services

International trade in financial services is a topic of some importance both to the financial services sector itself and in international trade negotiations. Unfortunately, intrinsic problems in defining and measuring trade in services, combined with a lack of data in many countries, have made empirical analysis of trade in financial services difficult. Recent improvements in data, although still providing only a limited coverage, do now provide a basis for analysis. In this paper, we use data from the OECD International Trade in Services Statistics 2001 database to conduct an analysis of trade in financial services based on standard theories and empirical techniques for international trade. Our results suggest that the key concepts of international trade are of use in understanding international trade flows in financial services. In particular, we find evidence of significant volumes of intra-industry trade in financial services, as well as significant volumes of inter-industry trade for some countries, including the UK. Using Balassa's ‘revealed comparative advantage’ index, the most highly ranked countries are Belgium-Luxembourg, Italy, Switzerland, the UK, the USA and Greece. Using the ‘net export ratio’, the countries that are ranked highest include Germany, Switzerland, the UK, the USA and Belgium-Luxembourg.

International financial services: determinants of banks’ foreign assets held by non-banks

Banks’ foreign assets held by non-banks are part of the growing volume of international trade in financial services. This paper investigates, for the first time, the determinants of banks’ assets held by non-banks for Germany, Japan, the United Kingdom and the United States. The underlying model used to measure banks’ foreign assets held by non-banks in this study, is based on those models which have measured the determinants of banks’ total foreign assets and international inter-bank activities. The empirical results of this model suggest a positive relationship with foreign direct investment in banking and banks’ foreign assets held by non-banks. Other significant factors identified include bilateral trade, the value of national income, and the real interest rate differential. Furthermore, banks’ foreign assets held by non-banks are found to be significantly related to the respective level of inter-bank dealings, such that a restriction on the overall amount of activities exists. Finally, global bank flows of opposite directions are found to be positively correlated, highlighting the fact that the perceived risk of foreign lending is reduced by simultaneous increases in banks’ foreign liabilities.

International investment in financial services

This paper analyzes and models the significant components of international trade in financial services, namely, foreign direct investment in banking for the US, the UK and Germany. It distinguishes between banks' activities abroad and FDI in banking by banks and non-banks. A model for FDI in banking is proposed which contains certain explanatory variables peculiar to FDI in banking as compared to FDI in manufacturing. The components of the model of FDI in banking is different from those models designed to explain banks activities abroad. The empirical results of this study of FDI in banking indicate that bilateral trade, banks' foreign assets, the cost of capital, relative economic growth, exchange rates and FDI in non-finance industries are the major determinants of foreign investment in banking.

International Trade in Financial Services: The NAFTA Provisions by K.N. Schaefer

International Trade in Financial Services: The NAFTA Provisions by K.N. Schaefer

International Trade In Financial Services, Competition, And Growth Performance

In this paper we explore linkages between financial services trade and growth. We offer a formalization of the argument that trade, through the fostering of financial market integration, may yield important long-run effects related to increased competition. The relationships formalized here link long-run economic performance to scale economies and cost structures in the financial services sector, and to market concentration in the sector. We first develop an analytical model. This motivates an econometric exercise. Cross-country growth regressions point to a strong positive relationship between financial sector competition and financial sector openness, and between growth and financial sector competition.

International business: determinants of interbank activities

This paper investigates the determinants of the international interbank market, a significant component of international trade in financial services. The sample encompasses both monthly and quarterly data from 1983 to 1993. The superiority of the monthly results suggest that the interbank market should be modelled within a short-term framework. This data interval captures the short-term movement of funds between currencies, Eurobonds, the nonbank market and the domestic banking market by banks to maximize returns. Moreover, the interbank market does not necessarily move in line with fundamental trade and income variables. Rather, the market is sensitive to return differentials, the relative cost of capital, the yield curve and international nonbank assets. The empirical results also indicate that nationality remains important in interbank trading because of the advantages it imparts on the home country in dealing in its home currency, particularly if that currency is a vehicle currency.

Is National Treatment Still Viable? U.S. Policy in Theory and Practice

National treatment, which precludes the use of rules that discriminate between foreign and domestic firms, seeks to ensure equality of competitive opportunity for foreign firms entering or operating in a host country. National treatment is a generally accepted principle for international trade in financial services. It is the basis for commitments by the twenty-four countries belonging to the Organization for Economic Cooperation and Development (OECD) and for the current negotiations on trade in services in the Uruguay Round of the General Agreement on Tariffs and Trade (GATT). This paper provides an analysis of national treatment and alternative principles in the context of the banking sector, with the U.S. experience as an example.The first section of the paper presents a conceptual analysis of national treatment and of principles that go beyond national treatment that have been used or proposed to govern domestic market access for foreign firms. The second section discusses the development and application of the U.S. policy of national treatment in the context of the conflicting demands created by the internationalization of banking and a host-country regulatory structure that differs significantly from that of other major industrial countries. The treatment of nonbanking activities and interstate activities of foreign banks that operate banking offices in the United States are used as examples of the U.S. approach. The final section presents the conclusions.