Foreign Competition and Banking Industry Dynamics: An Application to Mexico

42 Pages Posted: 19 Sep 2015

See all articles by Dean Corbae

Dean Corbae

University of Wisconsin - Madison

Pablo D'Erasmo

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Date Written: September 2015

Abstract

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

Corbae, Dean and D'Erasmo, Pablo, Foreign Competition and Banking Industry Dynamics: An Application to Mexico (September 2015). FRB of Philadelphia Working Paper No. 15-33. Available at SSRN: https://ssrn.com/abstract=2662450 or http://dx.doi.org/10.2139/ssrn.2662450

Dean Corbae

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Pablo D'Erasmo (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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