Financial Globalization and the Roles of Competition-Restriction Policies

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This paper examines the effects of globalization on efficiency of fund allocation and the roles of competition-restriction policies through constructing a simple general equilibrium model of financial markets without credit rationing, which consists of loan markets with both perfect and imperfect information about borrowers' repayment possibilities, a deposit market, a call market and an international debt market. The main results are that the combination of entry restriction for large banks and prohibition on the international debt flow has a potential for increasing welfare, and that its potentiality is higher under conditions characteristic of developing countries. These conclusions show that even if there were no moral hazard in banking, credit rationing and instabilities stemming from international capital markets, globalization would not necessarily has positive effects on the efficiency of fund allocation if only adverse-selection effect exists in a part of domestic loan markets.
創価大学の論文