play an important role as young (connected) firms benefitted the most (least) from foreign bank entry.<sup>2</sup> Exploiting sectoral data from more than 90 countries between 1995 and 2007, Claessens, Hassib, and van Horen (2015) investigate whether the local presence of foreign banks stimulates exports. This paper is closely related to ours. Foreign banks can promote trade but they focus on the financing roles these banks play in increasing exports by relying on the sectors dependence on external finance from Rajan and Zingales (1996) in their identification strategy. In contrast, our paper focuses on how the presence and footprint of foreign banks affect the sub-national exports of one country.

Our paper highlights the information roles foreign banks can play in promoting trade. Turkey presents a distinct case to examine the information role of foreign banks as firms in Turkey are less reliant on foreign banks for trade financing. As discussed in Acar (2009) above, over 70% of firms use their own capital or retain earnings to finance production activities and Turkish exporters are financed by cash on delivery.<sup>3</sup> In fact, the survey of Turkish firms by Acar (2009) finds that the decline in Turkish exports during the financial crisis is a result of decreases in foreign demand rather than issues with trade finance (See Ahn (2015) for a theoretical discussion). Demir and Javorcik (2016) also confirm the findings in the survey with data from the Turkish Statistical Institute for a subset of exports. They show that in 2002 a majority of textiles and clothing from Turkey to the EU (92%) and nonEU countries (76%) were financed by open account transactions and documentary collection methods.<sup>4</sup> These firms do not rely on the banks to provide credit financing.

Second, we contribute to the emerging literature that examines how networks can overcome information barriers in international trade. Information asymmetries and the lack of information about the final destination present large fixed costs to trade, especially for firms exporting differentiated goods. Rauch (1999) finds that colonial ties and common languages between countries are more important for trade of differentiated goods than homogeneous goods.<sup>5</sup> Many firms overcome these informational barriers by relying on business and social networks to facilitate sales and increase the matches between buyers and sellers (Rauch

> 2The authors caution that the role of foreign banks may be magnified by the low level of development of banking systems at the time of the analysis, and compounded by the limited ability of local banks to screen for viable loans.

> 3While the cash on delivery method is riskier for Turkish exporters, many firms do not have the bargaining power to negotiate better terms with their foreign partners.

> 4Open account transactions are sales where the goods are shipped and delivered before payment is due. With documentary collection methods, a bank collects the payment on behalf of the exporter but the banks do not guarantee the payment. These methods are in contrast to the letter of credit, where the bank makes a commitment from the importer to pay the exporter.

> 5 Chaney (2008) presents a theoretical model that shows that less differentiated goods (having a higher elasticity of substitution) makes export participation or the extensive margin less sensitive to changes in trade barriers.

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