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Financial Sector Competition, Service Trade, and Growth

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  • Joseph F. Francois

    ()
    (Faculty of Economics, Erasmus University Rotterdam, and CEPR)

  • Felix Eschenbach

    ()
    (Faculty of Economics, Erasmus University)

Abstract

We explore dynamic linkages between financial/banking sector openness, financial sector competition, and growth. We first develop an analytical model, highlighting links between long-run economic performance and services trade, through scale economies and market and cost structures in the financial services sector. This is folIowed by an econometric exercise based on data for 130 countries for the 1990s. Our resu1ts point to a strong positive relationship between financia1 sector competition/performance and financia1 sector openness (meaning foreign bank access to domestic markets), and between growth and financial sector competition/performance. They also point to the presence of sca1e economies in the sector.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-089/2.

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Date of creation: 17 Sep 2002
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Handle: RePEc:dgr:uvatin:20020089

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Web page: http://www.tinbergen.nl

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Keywords: financial services trade; financial sector openness; service trade and imperfect competition; trade in services and growth; banking and growth.;

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  1. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
  2. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
  3. Claessens, Stijn & Demirguc-Kunt, Asli & Huizinga, Harry, 1998. "How does foreign entry affect the domestic banking market?," Policy Research Working Paper Series 1918, The World Bank.
  4. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
  5. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 689-721, August.
  6. Stephen D. Williamson, 1984. "Costly Monitoring, Loan Contracts and Equilibrium Credit Rationing," Working Papers, Queen's University, Department of Economics 572, Queen's University, Department of Economics.
  7. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers, University of California at Berkeley 41, University of California at Berkeley.
  8. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
  9. Torsten Sløk & Michael Klein & Luca Antonio Ricci & Hali J. Edison, 2002. "Capital Account Liberalization and Economic Performance," IMF Working Papers 02/120, International Monetary Fund.
  10. Benhabib, Jess & Spiegel, Mark M, 2000. " The Role of Financial Development in Growth and Investment," Journal of Economic Growth, Springer, Springer, vol. 5(4), pages 341-60, December.
  11. A. Galetovic, 1996. "Finance and growth: a synthesis and interpretation of the evidence," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 49(196), pages 59-82.
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Cited by:
  1. Bruno S. Frey, 2005. "Zwei Utopien jenseits des Weltstaates und der Anarchie," CREMA Working Paper Series 2005-32, Center for Research in Economics, Management and the Arts (CREMA).
  2. Bayraktar, Nihal & Wang, Yan, 2006. "Banking sector openness and economic growth," Policy Research Working Paper Series 4019, The World Bank.

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