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Banking privatization and market structure in Brazil: a dynamic structural analysis
Author(s) -
Sanches Fabio,
Silva Junior Daniel,
Srisuma Sorawoot
Publication year - 2018
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12257
Subject(s) - subsidy , counterfactual thinking , business , government (linguistics) , private sector , monetary economics , economics , financial system , finance , market economy , economic growth , philosophy , linguistics , epistemology
This article examines the effects of bank privatization on the number of bank branches operating in small isolated markets in Brazil. We estimate a dynamic game played between Brazilian public and private banks. We find private banks compete with each other as expected. We also find public banks generate positive spillovers for private banks. Our counterfactual study shows that privatization substantially reduces the number of banks. The government can mitigate the effects of privatization by providing subsidies to private banks. Our model predicts subsidy policies that reduce operating costs are more cost‐effective than entry costs for isolated markets in Brazil.