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Analysis reveals financial reforms reduced industry concentration, suggesting increased competition, but did not lower interest-rate spreads.
This article investigates if reforms of financial markets in Costa Rica have reduced the concentration of the financial industry and the interest-rate spread, two desirable outcomes of financial reforms. Our investigation shows that the concentration of the financial industry, measured by the Herfindhal-Hirschman index, fell notably after the conclusion of the reforms, suggesting an increased competition among financial institutions. Our research, however, does not support the view that the fall in concentration led to a reduction in the interest-rate spread. We provide explanations for the results and suggest avenues for future research.
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Rojas et al. (2019) studied this question.
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