Foreign banks can play an important role in facilitating international trade. They can provide trade financing, enforce contracts, and reduce information asymmetries. Studies have shown that trade financing is an important channel to boost exports. For example, Claessens and others (2015) show that sectors that are more dependent on external finance have more bilateral exports when a foreign bank from that trade partner is present in the country. Much like immigrant networks and colonial ties (Rauch 1999), foreign banks can play a role in reducing information asymmetries for exporting firms, especially in countries where there are fewer financing constraints. Foreign banks have strong ties with their parent country, and are better placed to assess the profitability of a given product in that market and provide information about export market conditions.
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