Working Paper: CEPR ID: DP2144
Authors: Joseph F. Francois; Ludger Schuknecht
Abstract: In this paper we explore linkages between financial services trade and growth. We offer a formalization of the argument that trade, through the fostering of financial market integration, may yield important long-run effects related to increased competition. The relationships formalized here link long-run economic performance to scale economies and cost structures in the financial services sector, and to market concentration in the sector. We first develop an analytical model. This motivates an econometric exercise. Cross-country growth regressions point to a strong positive relationship between financial sector competition and financial sector openness, and between growth and financial sector competition.
Keywords: financial services; trade; service trade; imperfect competition; trade in services; growth
JEL Codes: F13; F40; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial sector openness (F65) | Increased competition in the financial services sector (G29) |
| Increased competition in the financial services sector (G29) | Higher growth rates (O49) |
| Financial sector openness (F65) | Higher growth rates (O49) |