DP3573 Financial Sector Competition, Services Trade, and Growth

Author(s): Felix Eschenbach , Joseph Francois

Publication Date: October 2002

Keyword(s): financial services trade , financial sector openness , services trade , services trade and growth , services trade and imperfect competition , banking competition

JEL(s): F13 , F40 , F43 , G15

Programme Areas: International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP3573.asp

We explore dynamic linkages between financial/banking sector openness, financial sector competition, and growth. We first develop an analytical model, highlighting links between long-run economic performance and the services trade, through scale economies and market and cost structures in the financial services sector. This is followed by an econometric exercise based on data for 130 countries for the 1990s. Our results point to a strong positive relationship between financial sector competition/performance and financial sector openness (meaning foreign bank access to domestic markets), and between growth and financial sector competition/performance. They also point to the presence of scale economies in the sector.