Estimation of the banking sector competition in the CEE countries: The Panzar-Rosse approach

• Main Authors: Arben Mustafa, Valentin Toçi
• Format: Article
• Language: deu
• Published: Faculty of Economics University of Rijeka 2017-12-01
• Series: Zbornik radova Ekonomskog fakulteta u Rijeci : časopis za ekonomsku teoriju i praksu
• Subjects: banks; competition; Panzar-Rosse approach; Central and Eastern Europe
• Online Access: https://www.efri.uniri.hr/sites/efri.uniri.hr/files/cr-collections/2/03-mustafa-toci-2017-2-1513970583.pdf
• ISSN: 1331-8004; 1846-7520

Competitive conditions in the banking sectors in the light of transition process in the Central and Eastern Europe countries (CEE) has been subject of interest for researchers and policy-makers, especially upon entry of foreign banks and concentrated markets. In this paper the Panzar-Rosse approach is used to assess competition of banking sectors in CEE. By using General Method of Moments on the panel data for 300 banks for the period 1999-2009, empirical evidence indicates that banks operating in the CEE exert monopoly behaviour. From the methodological point of view, the findings suggest that using a price equation or controlling for total assets in a Panzar-Rosse approach produces upwards biased and invalid estimates of the H-statistic. Therefore, further support is provided for maintaining a reducedform revenue equation when estimating a Panzar-Rosse model. The findings also suggest that banks operating in the non-EU countries of the CEE region have exerted stronger market power compared to the banks operating in the EU countries of this region. Policy-makers should improve competitive conditions and general ‘enabling’ environment for the banking sectors, especially the non-EU countries of the CEE region, while balancing competition-stability trade-off.