Working Paper

The political economy of foreign bank entry and its impact: theory and a case study

Abstract: We apply Becker's (1983) model of lobbying to show that liberalization of foreign bank entry may result from political changes and a fall in domestic bank efficiency caused by lack of competition, which raises the costs to domestic banks of restricting foreign bank entry. We also show that in equilibrium, reform may be too limited to improve efficiency. We use this model and Data Envelopment Analysis techniques to interpret the liberalization of foreign bank entry in the Philippines in 1994. Declines in banking efficiency reduced resistance to foreign bank entry, but the effects of liberalization on efficiency were modest.

Keywords: Monetary policy - East Asia; Inflation (Finance);

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Pacific Basin Working Paper Series

Publication Date: 2001

Number: 2001-11