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What drives bank competition? some international evidence

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  • Claessens, Stijn
  • Laeven, Luc

Abstract

Using bank-level data, the authors 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.

Suggested Citation

  • Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
    • Handle: RePEc:wbk:wbrwps:3113
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    Keywords

    Environmental Economics&Policies; Banks&Banking Reform; Payment Systems&Infrastructure; Economic Theory&Research; Labor Policies; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Markets and Market Access;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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