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What Drives Banking Industry Competition in Developing Countries?

Author

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  • Amit Ghosh

    (Illinois Wesleyan University)

Abstract

A competitive banking industry leads to an efficient allocation of financial resources, consequently increasing investment and economic growth. However, pervasive market inefficiencies and outmoded business practices often deter competition in the banking industry of developing countries. The present study examines the determinants of bank competition in such nations for the period 1995-2014 and compares that with high income countries. Employing both fixed-effects and GMM estimations and using two different measures of bank competition, we find greater diversification, credit risks and economic freedom to promote competition in developing countries while higher capitalization, profitability and cost efficiency increases market power.

Suggested Citation

  • 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.
    • Handle: RePEc:jed:journl:v:43:y:2018:i:4:p:1-20
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    References listed on IDEAS

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    Cited by:

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    2. Jirawan Prayoonrattana & Thanarak Laosuthi & Bundit Chaivichayachat, 2020. "Empirical Measurement of Competition in the Thai Banking Industry," Economies, MDPI, vol. 8(2), pages 1-20, June.
    3. Coccorese, Paolo & Girardone, Claudia & Shaffer, Sherrill, 2021. "What affects bank market power in the euro area? A country-level structural model approach," Journal of International Money and Finance, Elsevier, vol. 117(C).
    4. Petra Budská & Luboš Fleischmann, 2021. "Vývoj a porovnání konkurence a koncentrace v bankovním a pojistném sektoru v České republice v letech 2007-2019 [Development and Comparison of Competition and Concentration in the Banking and Insur," Politická ekonomie, Prague University of Economics and Business, vol. 2021(1), pages 3-25.
    5. Monika Klimontowicz & Anna Losa-Jonczyk & Bogna Zacny, 2021. "Banks’ Energy Behavior: Impacts of the Disparity in the Quality and Quantity of the Disclosures," Energies, MDPI, vol. 14(21), pages 1-14, November.
    6. Hai-Yen Chang & Lien-Wen Liang & Yu-Luan Liu, 2021. "Using Environmental, Social, Governance (ESG) and Financial Indicators to Measure Bank Cost Efficiency in Asia," Sustainability, MDPI, vol. 13(20), pages 1-20, October.

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    More about this item

    Keywords

    Lerner Index; Boone Indicator; Diversification; Cost Efficiency; Panel Data;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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