Working Paper: CEPR ID: DP3573
Authors: Felix Eschenbach; Joseph Francois
Abstract: We explore dynamic linkages between financial/banking sector openness, financial sector competition, and growth. We first develop an analytical model, highlighting links between long-run economic performance and the services trade, through scale economies and market and cost structures in the financial services sector. This is followed by an econometric exercise based on data for 130 countries for the 1990s. Our results point to a strong positive relationship between financial sector competition/performance and financial sector openness (meaning foreign bank access to domestic markets), and between growth and financial sector competition/performance. They also point to the presence of scale economies in the sector.
Keywords: banking competition; financial sector openness; financial services trade; services trade; services trade and growth; services trade and imperfect competition
JEL Codes: F13; F40; F43; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial sector competition (G18) | financial sector openness (F65) |
| financial sector openness (F65) | financial sector competition (G18) |
| financial sector competition (G18) | economic growth (O49) |
| financial sector openness (F65) | economic growth (O49) |
| financial sector competition (G18) | financial services prices (G29) |
| financial sector openness (F65) | banking sector concentration (G21) |