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Productivity and Income-Redistribution Impacts of Banking Liberalisation in Europe - An Empirical Analysis Based on the Melitz Model\par



This paper tests empirically several assumptions and predictions of the Melitz (2003) and Baldwin and Forslid (2004) heterogeneous firm framework. The focus is on liberalisation-induced productivity and profitability consequences for international and regional banks in seven European countries during the 1988 to 2003 period. Confirming higher productivity and profitability for international banks throughout the investigated period, the panel data analysis also establishes a positive link between higher international market participation and bank productivity. It also provides evidence for an increase in aggregate banking productivity that can be attributed to banking liberalisation. On the other hand, our results do neither detect a narrowing of the productivity gap nor a widening of the profitability gap between international and regional banks. This can be accounted for by the particular regulatory environment of the banking sector as well as the deregulatory nature of banking liberalisation only affecting fixed trade costs but not variable trade costs.\par

Suggested Citation

  • Clemens Sager, 2006. "Productivity and Income-Redistribution Impacts of Banking Liberalisation in Europe - An Empirical Analysis Based on the Melitz Model\par," IHEID Working Papers 14-2006, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp14-2006

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    References listed on IDEAS

    1. Andrew B. Bernard & J. Bradford Jensen & Peter K. Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," Working Paper Series WP03-4, Peterson Institute for International Economics.
    2. Mahmut Yasar & Carl H. Nelson & Roderick Rejesus, 2006. "Productivity and Exporting Status of Manufacturing Firms: Evidence from Quantile Regressions," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(4), pages 675-694, December.
    3. Hopenhayn, Hugo A., 1992. "Exit, selection, and the value of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 621-653.
    4. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    More about this item


    Banking liberalisation; deregulation; firm heterogeneity; firm performance; productivity; first and second banking directivespar;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance


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