What Drives Bank Competition? Some International Evidence
International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)
International Monetary Fund (IMF); University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute; European Corporate Governance Institute (ECGI)
August 6, 2003
World Bank Policy Research Working Paper No. 3113
Using bank-level data, Claessens and Laeven apply the Panzar and Rosse (1987) methodology to estimate the extent to which changes in input prices are reflected in revenues earned by specific banks in 50 countries' banking systems. They then relate this competitiveness measure to indicators of countries' banking system structures and regulatory regimes. The authors find systems with greater foreign bank entry and fewer entry and activity restrictions to be more competitive. They find no evidence that the competitiveness measure negatively relates to banking system concentration. Their findings confirm that contestability determines effective competition, especially by allowing (foreign) bank entry and reducing activity restrictions on banks.
This paper - a product of the Financial Sector Operations and Policy Department - is part of a larger effort in the department to study competition in the financial sector.
Number of Pages in PDF File: 34
Keywords: Banking, competition, contestability, Panzar and Rosse
JEL Classification: D4, G21, L11, L80, O16working papers series
Date posted: February 29, 2004
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