gravity variables are as expected: the larger the size of the sub-region and the trade-partner economy, the larger the exports to the trade partner; the further away in distance is the trade partner, the smaller the exports.

Next we examine if there are spillover effects from the banks from other neighboring trade-partner countries. The results in Table 3 indicates that the presence of banks from countries within the region of the trade partner continues to promote exports. However, a higher share of regional banks from neighboring countries reduces exports to the trade partner. The results suggest that foreign banks from neighboring countries have a trade diversion effect, where the sub-region trades more with regional countries that have a larger bank presence and substitute away from trade with the trade-partner country. When both the shares of bank branches from the trade partner and neighboring countries are included in the regression, the trade diversion effect is present but the presence of bank branches from the trade partner mitigates this effect. A one standard deviation increase in the share of regional bank branches decreases _Log(Exportsijt)_ by 0.06 standard deviations. In contrast, a one standard deviation increase in the share of bank branches from the trade partner increases _Log(Exportsijt)_ by 0.08 standard deviations. The net effect on _Log(Exportsijt)_ is positive. The role of the level of financial development remains unchanged from baseline results. A one standard deviation increase in financial development increases _Log(Exportsijt)_ by 0.03 standard deviations.

Finally the data set allows us to investigate whether the role of foreign banks changes as financial conditions tighten. We include a dummy for the crisis period and interact it with the variables for financial development and the information channel. Tables 4 and 5 report the results. Again the intensive margins play a more significant role in boosting trade. When the _Share(Trade-partner bankijt)_ grows by one standard deviation during the crisis, _Log(Exportsijt_ ) increases by 0.05 standard deviation. The corresponding effect for either the financial development or the extensive margin is more muted at 0.01 increase in the standard deviation of exports.<sup>13</sup> The results are reversed when we examine the spillover effects of banks from the trade partners region, which is in line with the results above that do not control for the crisis period.

A possible concern is the endogeneity of the financial development as the supply and demand channels may influence and determine fluctuations of the variable. The level of fi-

> 13The result can be interpreted through the lenses of Besedeˇs, Kim, and Lugovskyy (2014). They develop a theoretical model to show that credit constraints play a key role in early stages of exporting, but not in later stages. The model is supported by empirical evidence from product-level data on exports to 12 European Union members and the United States. In our case, we cannot control for the duration of export experience, and thus cannot directly test the implications of Besedeˇs, Kim, and Lugovskyy (2014). However, the information channel may have differential impacts on exports depending on the financial conditions faced by the sub-region.

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