International Finance Discussion Papers (IFDP)
April 1991
Market Segmentation and 1992: Toward a Theory of Trade in Financial Services
John D. Montgomery
Abstract:
The effect of the unification of the European banking market on the efficiency of the allocation of capital across Europe depends on the economic forces behind banking structure. Such forces are not well understood. The paper discusses a conceptual framework for analyzing financial services (especially bank loans and deposits), in which a key distinction is between services offered across borders and those services where location of the intermediary matters. Empirical evidence from Italy is examined that suggests that banking markets are geographically fragmented, possibly because of natural, as opposed to regulatory, barriers to capital mobility. In the light of this conceptual framework and the empirical results, the likely effect of European integration on real capital mobility and efficiency of banking markets is discussed.
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