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Foreign competition and banking industry dynamics: an application to Mexico

P. Dean Corbae () and Pablo D'Erasmo ()

No 15-33, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The authors develop a simple general equilibrium framework to study the effects of global competition on banking industry dynamics and welfare. They apply 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 the high concentration in the Mexican banking industry, domestic and foreign banks act strategically in the authors? framework. After calibrating the model to Mexican data, the authors examine the welfare consequences of government policies that promote global competition. They find relatively high economy-wide welfare gains from allowing foreign bank entry.

Keywords: Bank industry dynamics; Foreign bank competition; Global banks (search for similar items in EconPapers)
JEL-codes: G21 E60 G01 F41 F30 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2015-09-18, Revised 2015-09-18
New Economics Papers: this item is included in nep-ban, nep-com, nep-cse, nep-dge and nep-mac
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