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Federal Reserve Bank of Philadelphia
Working Papers
Foreign competition and banking industry dynamics: an application to Mexico
Dean Corbae
Pablo D'Erasmo
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 economy-wide welfare gains from allowing foreign bank entry.


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Dean Corbae & Pablo D'Erasmo, Foreign competition and banking industry dynamics: an application to Mexico, Federal Reserve Bank of Philadelphia, Working Papers 15-33, 18 Sep 2015.
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Keywords: Global banks; Foreign bank competition; Bank industry dynamics
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