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ORCID

Alexander D. Klemm 0000-0002-9892-3182

Keywords

Mexico; credit gap; credit growth; financial development

Abstract

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.

Acknowledgments

The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management; the U.S. Department of Treasury, the United States Government, or their policies. Alexander Herman worked on this paper while employed by the IMF. We are grateful for comments from J. Araujo, S. Basu, P. Cavallino, J. Chow, A. de la Garza, D. Iakova, R. Rennhack, F. Valencia, an anonymous referee, and seminar participants at the Bank of Mexico.

First Page

5

Last Page

18

Page Count

14

Received Date

7 February 2018

Revised Date

29 October 2018

Accept Date

17 December 2018

Online Available Date

30 January 2019

DOI

10.7172/2353-6845.jbfe.2019.1.1

JEL Code

G18; G21; O16

Publisher

University of Warsaw

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