Do Non -Tariff Measures Make Domestic Firms More Profitable? Evidence from the Commercial Banking Sector

Abstract

Using firm level data for a sample of 78 country markets in 2012, this paper analyzes the relationship between the severity of non-tariff measures related to the entry and operation of foreign firms and firm profitability in the commercial banking sector, and differentiates the impact of these non-tariff measures on foreign-owned and domestic firms. Overall, there is a non-linear relationship between the level of restrictions and the profitability of firms. Banks in countries with low levels of restriction are significantly more profitable than banks in countries with no restrictions, while banks in countries with moderate levels of restriction are less profitable than banks in countries with no restrictions. Additionally, foreign owned firms are significantly more profitable than domestic firms when there are no restrictions on the entry and operation of foreign firms, but less profitable than domestically owned firms at both low and moderate levels of restriction.