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Foreign Competition and Banking Industry Dynamics: An Application to Mexico

Author

Listed:
  • Dean Corbae
  • Pablo D’Erasmo

Abstract

Our paper develops a simple general equilibrium framework to study the effects of global competition on banking industry dynamics and welfare. It applies the framework to the Mexican banking industry, which underwent a major structural change in the 1990s as a consequence of both government policy and external shocks. Given high concentration in the Mexican banking industry, domestic and foreign banks act strategically in the framework. After calibrating the model to Mexican data, the paper examines the welfare consequences of government policies which promote global competition. It finds relatively high economy-wide welfare gains from allowing foreign bank entry.

Suggested Citation

  • Dean Corbae & Pablo D’Erasmo, 2015. "Foreign Competition and Banking Industry Dynamics: An Application to Mexico," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(4), pages 830-867, November.
    • Handle: RePEc:pal:imfecr:v:63:y:2015:i:4:p:830-867
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    Cited by:

    1. Niepmann, Friederike, 2023. "Banking across borders with heterogeneous banks," Journal of International Economics, Elsevier, vol. 142(C).
    2. Liangliang Jiang & Ross Levine & Chen Lin, 2023. "Does Competition Affect Bank Risk?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1043-1076, August.
    3. Miriam Goetz, 2024. "Multinational Lending Retrenchment after the Global Financial Crisis: The Impact of Policy Interventions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 66(1), pages 51-75, August.
    4. Wei, Qi & Zeng, Sheng & Tao, Qingmei, 2024. "Does bank competition improve borrower welfare? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1353-1368.
    5. Epstein, Brendan & Finkelstein Shapiro, Alan, 2017. "Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks," MPRA Paper 88697, University Library of Munich, Germany.
    6. Felipe Meza & Sangeeta Pratap & Carlos Urrutia, 2019. "Credit, Misallocation and Productivity: A Disaggregated Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 61-86, October.
    7. Dean Corbae & Pablo D'Erasmo, 2014. "Capital requirements in a quantitative model of banking industry dynamics," Working Papers 14-13, Federal Reserve Bank of Philadelphia.
    8. Alan Finkelstein Shapiro & Brendan Epstein, 2018. "Banking and Financial Access Reforms, Labor Markets, and Financial Shocks," 2018 Meeting Papers 2, Society for Economic Dynamics.
    9. Müting, Miriam, 2020. "Multinational lending retrenchment after the global financial crisis: The impact of policy interventions," Discussion Papers in Economics 72612, University of Munich, Department of Economics.

    More about this item

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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