Foreign Competition and Banking Industry Dynamics: An Application to Mexico
42 Pages Posted: 19 Sep 2015
Date Written: September 2015
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 economywide welfare gains from allowing foreign bank entry.
Keywords: Global Banks, Foreign Bank Competition, Bank Industry Dynamics
JEL Classification: E60, F30, F41, G01, G21
Suggested Citation: Suggested Citation