IDEAS home Printed from https://ideas.repec.org/a/iez/survey/ces-v20_1-2018_mustafa-toci.html
   My bibliography  Save this article

Banking Sector Competition in the Panzar-Rosse Framework and Net Interest Margins: An Empirical Analysis Using the General Method of Moments

Author

Listed:
  • Arben Mustafa

    (University “Kadri Zeka”, Faculty of Economics, Gjilan, Republic of Kosovo)

  • Valentin Toci

    (University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo)

Abstract

This paper provides empirical evidence on the determinants of net interest margins in Central, Eastern, and Southeastern European countries (CESEE) during the period 1999–2009, with a particular focus on the relationship between banking sector competition and net interest margins. Using country-level Panzar-Rosse H-statistic estimates as a measure of competition, and the General Method of Moments, it has been determined that banking sector competition had a negative impact on net interest margins. In order to check for consistency, alternative measures of competition, such as the Lerner index and the Herfindahl-Hirschman index, have also been used. The results appear consistent and suggest that higher market power is associated with higher interest margins. A number of interactions have been used to check for the impact of competition when interacted with other variables. The study also provides evidence on the impact of other bank-specific, macroeconomic, and institutional variables on net interest margins.

Suggested Citation

  • Arben Mustafa & Valentin Toci, 2018. "Banking Sector Competition in the Panzar-Rosse Framework and Net Interest Margins: An Empirical Analysis Using the General Method of Moments," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 20(1), pages 5-36, June.
    • Handle: RePEc:iez:survey:ces-v20_1-2018_mustafa-toci
    as

    Download full text from publisher

    File URL: https://hrcak.srce.hr/file/299080
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    2. repec:zbw:bofism:1995_001 is not listed on IDEAS
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Iryna Okolelova & Jacob A. Bikker, 2022. "The single supervisory mechanism: Competitive implications for the banking sectors in the euro area," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1818-1835, April.
    2. Yang, Jun & Shao, Hanhua, 2016. "Impact of bank competition on the bank lending channel of monetary transmission: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 468-481.
    3. Iryna Okolelova & Jacob A. Bikker, 2022. "The single supervisory mechanism: Competitive implications for the banking sectors in the euro area," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1818-1835, April.
    4. Jhuma Mukhopadhyay & Indrani Chakraborty, 2017. "Competition and Industry Performance: A Panel VAR Analysis in Indian Manufacturing Sector," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(2), pages 343-366, June.
    5. Hong Liu & Phil Molyneux & John O.S. Wilson, 2013. "Competition in banking: measurement and interpretation," Chapters, in: Adrian R. Bell & Chris Brooks & Marcel Prokopczuk (ed.), Handbook of Research Methods and Applications in Empirical Finance, chapter 8, pages 197-215, Edward Elgar Publishing.
    6. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, vol. 94(4), pages 1194-1206, September.
    7. Cruz-García, Paula & Fernández de Guevara, Juan & Maudos, Joaquín, 2021. "Bank competition and multimarket contact intensity," Journal of International Money and Finance, Elsevier, vol. 113(C).
    8. Basant, Rakesh & Mishra, Pulak, 2017. "Vertical Integration, Market Structure and Competition Policy: Experiences of Indian Manufacturing Sector during the Post Reform Period," IIMA Working Papers WP 2017-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    9. John Goddard & Hong Liu & Phil Molyneux & John O.S. Wilson, 2013. "Do Bank Profits Converge?," European Financial Management, European Financial Management Association, vol. 19(2), pages 345-365, March.
    10. Vega-Gutierrez, Pedro Luis & López-Iturriaga, Félix J. & Rodriguez-Sanz, Juan Antonio, 2021. "Labour market conditions and the corporate financing decision: A European analysis," Research in International Business and Finance, Elsevier, vol. 58(C).
    11. Hong Liu & Philip Molyneux & Linh H. Nguyen, 2012. "Competition and risk in South East Asian commercial banking," Applied Economics, Taylor & Francis Journals, vol. 44(28), pages 3627-3644, October.
    12. Amit Ghosh, 2018. "What Drives Banking Industry Competition in Developing Countries?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 43(4), pages 1-20, December.
    13. Lukáš Čechura & Zdeňka Žáková Kroupová, 2021. "Technical Efficiency in the European Dairy Industry: Can We Observe Systematic Failures in the Efficiency of Input Use?," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    14. Andrew Benito, 2001. "'Oscillate Wildly': asymmetries and persistence in company-level profitability," Bank of England working papers 128, Bank of England.
    15. Bianka Dettmer, 2012. "Business services outsourcing and economic growth: Evidence from a dynamic panel data approach," Jena Economics Research Papers 2012-049, Friedrich-Schiller-University Jena.
    16. Canan Yildirim, 2014. "Competition in Turkish Banking: Impacts of Restructuring and the Global Financial Crisis," The Developing Economies, Institute of Developing Economies, vol. 52(2), pages 95-124, June.
    17. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
    18. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    19. Arben Mustafa & Valentin Toçi, 2017. "Estimation of the banking sector competition in the CEE countries: The Panzar-Rosse approach," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 35(2), pages 459-485.
    20. Abu Hanifa Md Noman & Chan Sok Gee & Che Ruhana Isa, 2017. "Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis," PLOS ONE, Public Library of Science, vol. 12(5), pages 1-27, May.

    More about this item

    Keywords

    bank competition; net interest margins; Panzar-Rosse H-statistic; General Method of Moments;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iez:survey:ces-v20_1-2018_mustafa-toci. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Doris Banicevic (email available below). General contact details of provider: https://edirc.repec.org/data/eizgghr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.