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Measuring the degree of competition in Pakistan’s banking industry: an empirical analysis

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  • Faisal Mehmood Mirza
  • Olvar Bergland
  • Isma Khatoon

Abstract

Pakistan’s banking industry has gone through significant transformation from being in a heavily state regulated and controlled environment to a more liberalized market structure in recent years. This liberalization of banking industry in Pakistan has raised concerns over the dominant banks’ exercise of market power on account of increase in market concentration due to mergers and acquisitions, high profitability in banking sector and increasing interest rate spread. Present study therefore explicitly tests the market conduct of banks using quarterly panel data of 30 banks from 2004 to 2012 and employing Panzar–Rosse, Bresnahan–Lau, Hall–Roeger and Boone’s approaches to study market power. Our findings suggest that Pakistan’s banking industry is working in a competitive environment and we find little evidence for the exercise of market power by the dominant banks. Our results remain robust across all these approaches to measure market power. These findings indicate that the liberalization and deregulation of Pakistan’s banking industry has been successful in improving the competitive conditions in the market.

Suggested Citation

  • Faisal Mehmood Mirza & Olvar Bergland & Isma Khatoon, 2016. "Measuring the degree of competition in Pakistan’s banking industry: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 48(53), pages 5138-5151, November.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:53:p:5138-5151
    DOI: 10.1080/00036846.2016.1173177
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    References listed on IDEAS

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    1. Jim Wong & Eric Tak-Chuen Wong & Tom Pak-Wing Fong & Ka-Fai Choi, 2008. "Competition in Hong Kong’s Banking Sector: A Panzar–Rosse Assessment," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Hans Genberg & Cho-Hoi Hui (ed.), The Banking Sector in Hong Kong, chapter 2, pages 17-31, Palgrave Macmillan.
    2. Jacob A. Bikker, 2004. "Competition and Efficiency in a Unified European Banking Market," Books, Edward Elgar Publishing, number 2830.
    3. Tabak, Benjamin M. & Gomes, Guilherme M.R. & da Silva Medeiros, Maurício, 2015. "The impact of market power at bank level in risk-taking: The Brazilian case," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 154-165.
    4. Phil Molyneux & Hong Liu & John O.S. Wilson, 2010. "Measuring Competition and Stability: Recent Evidence for European Banking," Working Papers 10020, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
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    Cited by:

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    3. Ayesha Hameed & Tahir Saeed Jagirani & Mohammad Qamar Qureshi & Aisha Riaz, 2024. "The Causal Linkages between Market Power and Cost Efficiency: Testing Quiet Life Hypothesis for the Banking Industry," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 803-811.
    4. Mohammed, Nafisah & Muhammad, Junaina & ismail, abdul, 2018. "The Degree of Competition in the Malaysian Dual Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(3), pages 71-89.
    5. João Amador & Ana Cristina Soares, 2018. "Competition in the Portuguese economy: insights from a profit elasticity approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(2), pages 339-365, May.
    6. Ramaele Moshoeshoe & Katleho Thokoa, 2021. "Market structure and bank conduct in Lesotho," South African Journal of Economics, Economic Society of South Africa, vol. 89(3), pages 368-390, September.

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