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Bank Competition and International Financial Integration:Evidence Using a New Index

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  • Gurnain Kaur Pasricha

    (Hong Kong Institute for Monetary Research, University of California, Santa Cruz)

Abstract

In the debate on the benefits and costs of international financial integration recent literature has emphasized thresholds in the development of domestic markets as preconditions to benefitting from international integration. This paper offers an alternative view - that of development of competition in domestic markets as an aide to de-facto openness. Lack of competition in domestic financial systems may prevent countries from reaping the benefits of international integration simply because they prevent countries from being integrated in a meaningful way - that of price equalization. Using a new index of de facto financial openness, this paper explores the trends in and determinants of cross border integration of interbank markets. It finds a strong link between greater competitiveness in domestic banking and international integration. The level of de jure controls, volatility and institutions matter for price integration but their importance differs between developed and developing countries.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 242009.

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Length: 31 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:hkm:wpaper:242009

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Cited by:
  1. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(4), pages 794-806, April.
  2. Bernoth, Kerstin & Pick, Andreas, 2011. "Forecasting the fragility of the banking and insurance sectors," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(4), pages 807-818, April.

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