DP2144 Trade in Financial Services: Procompetitive Effects and Growth Performance

Author(s): Joseph Francois, Ludger Schuknecht
Publication Date: May 1999
Keyword(s): Financial Services Trade, Service Trade and Imperfect Competition, Trade in Services and Growth
JEL(s): F13, F40, F43
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2144

In this paper we explore linkages between financial services trade and growth. We offer a formalization of the argument that trade, through the fostering of financial market integration, may yield important long-run effects related to increased competition. The relationships formalized here link long-run economic performance to scale economies and cost structures in the financial services sector, and to market concentration in the sector. We first develop an analytical model. This motivates an econometric exercise. Cross-country growth regressions point to a strong positive relationship between financial sector competition and financial sector openness, and between growth and financial sector competition.