Migration and Cross-border Banking: The Missing Link?

• In Event: The Political Economy of Migration and Finance

Abstract

What explains global patterns of cross-border banking? Banking integration is a key part of global financial integration, facilitating international economic exchange and making capital available for investment. Existing research on causes of cross-border banking explains why some jurisdictions are better at attracting investment than others, yet this literature does less to explain why some pairs of countries become connected by cross-border banking, while others do not. We argue that cross-border banking connections can be understood through the lens of migrant networks. Migrant networks incentivize banks to move across borders, with banks following migrants to provide them local banking services and to channel remittances back to the country of origin. Transferring remittances into the country of origin allows banks to reach a previously untapped customer base, “banking the unbanked”. Using bank-level data, we investigate a more complete set of banking connections than much of the existing literature, including South-South links among emerging economies. This bank-level data reveals the role of migration in fostering links between jurisdictions. We not only show that migrants are important for foreign banks to “discover” new markets, but also that migrants act as a bulwark against disintegration: in dyads with more migration, cross-border banking is less likely to recede in response to banking crises. This finding speaks to the relationship between two forms of globalization classically seen as substitutes: the movement of capital and labor. Instead, our findings contribute to a literature that shows the complementarity between migration and capital mobility

Authors

• Alexandra Olivia Zeitz, University of Oxford

• David Leblang, University of Virginia