Protectionism and financial services

Motivated by a hitherto largely unproductive discourse on the topic, this dissertation seeks to answer three simple yet fundamental questions: What is financial protectionism? How does one measure it? What are some of its determinants? After having established the ill-defined nature of financial protectionism, as evidenced by the inconsistent use of the concept in mainstream media and in scholarly work, I draw on the international trade law literature and define it as the set of national policies which illegitimately and unnecessarily restrains international trade in financial services. This definition leads to a taxonomy which differentiates between four types: market entry restrictions, asymmetric regulation, asymmetric subsidies and capital controls. Based on this definition, I propose measures for all four types of banking protectionism, i.e. the subset of financial protectionism that relates to banking services. These measures are inspired by the literature on non-tariff trade barriers and are designed to meet the criteria of objectivity, comparability, conceptuality and implementability. Analysis of the resulting measures for a sample of 63 countries between 2006 and 2013 reveals a gradual shift towards the most complex and opaque type of banking protectionism: asymmetric regulation. Market entry restrictions, asymmetric regulation and asymmetric subsidies were relatively more frequent in developed countries, while instances of capital controls were concentrated in developing regions. Instances of asymmetric subsidies peaked in the immediate aftermath of the global financial crisis and were much less common in later years. The overall extent of market entry restrictions and capital controls did not evolve significantly on a global scale, but there were clear differences among regions. By contrast, asymmetric regulation featured a clearly recognizable and globally homogeneous upward trend. Building on the measures developed, I make an initial attempt to investigate some of the determinants of banking protectionism. I draw on the International Political Economy literature to develop three sets of hypotheses which I then test using panel data estimation methods. The results are contingent on the type of banking protectionism considered and suggest that more democratic, smaller countries and those with more effective prudential frameworks are significantly less likely to engage in overt and simple types of banking protectionism. Also, banking protectionism is less frequent in countries which are significant exporters of services or have lower levels of public debt. More developed countries are significantly less likely to make use of capital controls, but more likely to engage in all other types of banking protectionism.