Capital intensities and international trade in banking services

This paper examines the empirical implications of an international-trade-based view of the determination of banks’ net export positions in the provision of lending and deposit services. This trade-based perspective on international banking emphasizes the importance of banks’ expenses on labor and physical capital resources. Consequently, the theory indicates that relative abundances and intensities of these resources should play fundamental roles in influencing trade patterns in international bank loan and deposit markets. The paper focuses on the theory’s implication that systematic relationships should exist between measured overall capital intensities of nations’ banking systems and their net exports and imports of loans and deposits. Analysis of 2001–2012 data from 27 countries generally verifies the relationships predicted by the theory.