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Financial liberalization, market structure and credit penetration

Author

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  • Balmaceda, Felipe
  • Fischer, Ronald D.
  • Ramirez, Felipe
Abstract
This paper shows that the effects of financial liberalization on the credit market of a small and capital constrained economy depend on the market structure of domestic banks prior to liberalization. Specifically, under perfect competition in the domestic credit market prior to liberalization, liberalization leads to lower domestic interest rates, in turn leading to increased credit penetration. However, when the initial market structure is one of imperfect competition, liberalization can lead to the exclusion of less wealthy entrepreneurs from the credit market. This provides a rationale for the mixed empirical evidence concerning the effects of liberalization on access to credit in developing markets. Moreover, the analysis provides new insights into the consequences of foreign lenders’ entry into developing economies.

Suggested Citation

  • Balmaceda, Felipe & Fischer, Ronald D. & Ramirez, Felipe, 2014. "Financial liberalization, market structure and credit penetration," Journal of Financial Intermediation, Elsevier, vol. 23(1), pages 47-75.
    • Handle: RePEc:eee:jfinin:v:23:y:2014:i:1:p:47-75
    DOI: 10.1016/j.jfi.2013.08.003
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    2. Fischer, Ronald & Valenzuela, Patricio, 2013. "Financial openness, market structure and private credit: An empirical investigation," Economics Letters, Elsevier, vol. 121(3), pages 478-481.
    3. Yong-Bo Wang & Jin-Ray Lu, 2016. "A Supply-Lock Competitive Market for Investable Products," Asian Development Policy Review, Asian Economic and Social Society, vol. 4(4), pages 127-133, December.
    4. Jung, Jae Wook & Kim, Kyunghun, 2021. "Financial Market Integration and Income Inequality," East Asian Economic Review, Korea Institute for International Economic Policy, vol. 25(2), pages 175-203, June.
    5. Agoraki, Maria-Eleni K. & Kouretas, Georgios P., 2021. "Loan growth, ownership, and regulation in the European Banking Sector: Old versus new banking landscape," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    6. Ashraf, Badar Nadeem, 2018. "Do trade and financial openness matter for financial development? Bank-level evidence from emerging market economies," Research in International Business and Finance, Elsevier, vol. 44(C), pages 434-458.
    7. Nolungelo Cele & Kapingura FM, 2018. "Financial Sector Liberalization and Financial Instability: Case of Selected Southern African Development Community Member Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 10(6), pages 42-49.

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