Financial Deepening in Mexico

Author/Editor:

Alexander Herman ; Alexander D Klemm

Publication Date:

January 30, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

International comparisons reveal that—even controlling for a host of explanatory factors—credit depth is exceptionally low in Mexico. Using panel data methods linking credit growth and fundamentals, this paper estimates a long-term gap between actual and expected credit of about 40 percent of GDP. Possible explanations include the history of banking crises, the large informal sector and an inefficient legal system. Using a disequilibrium regression approach, this paper also finds that supply factors are particularly important as determinants of credit in Mexico. Recent financial reforms address many of the supply constraints, but their success will depend on implementation. The main challenge going forward will be to support financial deepening, while limiting risks to financial stability.

Series:

Working Paper No. 17/19

Subject:

English

Publication Date:

January 30, 2017

ISBN/ISSN:

9781475572926/1018-5941

Stock No:

WPIEA2017019

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

20

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