Bank-led Finance and External Competitiveness in Germany and Mexico

Document Type



Politics (Scripps)

Publication Date



Economic Policy | Economics | Finance and Financial Management | International Economics


This article employs a game-theoretic framework to analyze the behavior of economic agents and policy makers within two types of bank-led financial market systems. The game predicts the effects of bank-led finance on financial policy making in Germany and Mexico, which are substantially borne out by the empirical analysis. The evidence suggests that Mexican policy makers have tended to adopt short-term-oriented external monetary policies which have tolerated extreme overvaluation, whereas German policy makers have tended to favor competitiveness-conscious stability-oriented external monetary policies because of: weak competition among Mexican banks as compared with German banks, and Mexican policy makers’ traditional lack of credibility as compared with their German counterparts.

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© 2000 Review of International Political Economy