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

Clemens Sager ()
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Clemens Sager: IUHEI, The Graduate Institute of International Studies, Geneva

No 14-2006, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: 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

Keywords: Banking liberalisation; deregulation; firm heterogeneity; firm performance; productivity; first and second banking directives\par (search for similar items in EconPapers)
JEL-codes: D21 F14 G21 L25 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2006-07-09
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