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Growth and Banking Structure in a Partially Dollarized Economy

Author

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  • Carlos Gustavo Machicado

    () (Institute for Advanced Development Studies)

Abstract

This article illustrates how the industrial organization of a banking system affects economic growth in a partially dollarized economy. I study a model where banking competition has some potentially good and some potentially bad effects for growth. I analyze how important they are quatitatively and, surprisingly, they do not seem to matter much. The main reason for this is that while competition leads banks to offer consumers a "better deal" on their deposits, this does not lead to a large increase in the savings rate. The effect depends on the main structural parameter values of the economy. In particular, if there is a high demand for liquidity insurance. I calibrate the model for the Bolivian economy and show that the growth rates under both systems are not significantly different.

Suggested Citation

  • Carlos Gustavo Machicado, 2007. "Growth and Banking Structure in a Partially Dollarized Economy," Development Research Working Paper Series 02/2007, Institute for Advanced Development Studies.
  • Handle: RePEc:adv:wpaper:200702
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    References listed on IDEAS

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    More about this item

    Keywords

    General equilibrium and growth; Dollarization; Banking; Industrial Organization;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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