Abstract
In international competition, are bank groups efficiency enhancing or efficiency reducing? This paper attempts to clarify this issue by asking instead: efficiency for whom? In a simple, illustrative model, this paper shows that bank groups can be efficiency enhancing for the bank and the member firms, but hurting its competitor. More important global welfare rises with bank groups. These results are robust when we allow the bank and the member firm to bargain over its loan rate, when bank groups can be formed endogenously and when there are multiple exporters. Results in this paper suggest alternative interpretations of existing econometric results concerning the role of Japanese groups in U.S.–Japan trade. J. Japan. Int. Econ., June 2002, 16(2) pp. 212–226. Department of Economics, University of California, Santa Cruz, Santa Cruz, California.
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