Bank Competition, Real Investments, and Welfare

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Abstract

We construct an overlapping generations growth model, where young consumers choose how to allocate resources among real investment (deposits), acquisition of bank ownership, and young-age consumption. At old age, consumers sell bank ownership and collect their bank deposits to support consumption. The model shows that an increase in banks’ market power stimulates bank profit and bank value, thereby raising the resources required for young consumers to acquire bank ownership. This causes a crowding-out effect on real investment, the magnitude of which is amplified with higher endowment growth rate and real investment return. Finally, we conduct a welfare analysis of the investment crowding-out effect.
Original languageEnglish
Peer-reviewed scientific journalJournal of Economics
Pages (from-to)1-18
Number of pages18
ISSN0931-8658
DOIs
Publication statusPublished - 18.09.2018
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Investment crowding-out
  • Size of the banking sector
  • Deposit market competition
  • Economic growth

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