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a Dr Ali Mirzaei
b Dr Tomoe Moore
MARKET STRUCTURE, REGULATIONS, INSTITUTIONS, AND COMPETITION IN BANKING SYSTEM :
Emerging vs. OECD Advanced
ABSTRACT
This study examines the evolution of competition in 49 emerging and advanced markets’ banking environment over the period 2001-2010, and then relates the measures of competitiveness to indicators of banking structure, regulatory regimes, institutional settings, and other characteristics of the country. In the empirical part of our study, we employed a continuous-time curve version of the well-known model of Panzar and Rosse (1987), as well as the Lerner index. Empirical evidence is derived from a panel of 6,000 banks in 49 emerging and advanced countries. Analysing the evolution of competition over time, we find that while the H-statistic shows a gradual increase in competition over time, the Lerner index shows an increase in banking market power. Furthermore, we provided robust empirical evidences that for emerging economies, systems with more state-ownership banks and tighter regulations on bank’s entry and activities tend to be less competitive, even when controlling the overall national economic freedom. In contrast, for advanced economies, we found no evidence supporting the theory that contestability determines effective competition, although an increase in foreign bank penetration boosts the competition. Finally, while for emerging economies, the concentration is positively associated with competition, results for advanced economies provide evidence for the traditional view that concentration deteriorates the competitiveness.
Keywords: Market structure; Regulations; Competition; Emerging economies
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