Financial Deepening in Mexico

21 Pages Posted: 23 Mar 2017

See all articles by Alexander Herman

Alexander Herman

International Monetary Fund (IMF)

Alexander Klemm

International Monetary Fund (IMF)

Date Written: January 2017

Abstract

International comparisons reveal that-even controlling for a host of explanatory factors-credit depth is exceptionally low in Mexico. Using panel data methods linking credit growth and fundamentals, this paper estimates a long-term gap between actual and expected credit of about 40 percent of GDP. Possible explanations include the history of banking crises, the large informal sector and an inefficient legal system. Using a disequilibrium regression approach, this paper also finds that supply factors are particularly important as determinants of credit in Mexico. Recent financial reforms address many of the supply constraints, but their success will depend on implementation. The main challenge going forward will be to support financial deepening, while limiting risks to financial stability.

Keywords: Credit, Mexico, Financial sector, Banks, Credit expansion, Financial intermediation, Business cycles, Mexico; Credit gap; credit growth; financial development.

JEL Classification: G18, G21, O16

Suggested Citation

Herman, Alexander and Klemm, Alexander, Financial Deepening in Mexico (January 2017). IMF Working Paper No. 17/19, Available at SSRN: https://ssrn.com/abstract=2938320

Alexander Herman (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alexander Klemm

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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