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Bank competition, financial reform, and institutions: The importance of being developed

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  • Delis, Manthos D.

Abstract

In this paper, I estimate the degree of market power at the bank-level for 84 banking systems worldwide. Subsequently, I analyze the sources of bank competition, placing emphasis on the impact of financial reform and the quality of institutions. I find that financial liberalization policies reduce the market power of banks in developed countries with advanced institutions. In contrast, banking competition does not improve at the same pace in countries with weaker institutions and a lower level of institutional development. The results hold across a wide array of identification tests and estimation methods. The main policy implication to be drawn is that a certain level of institutional development is a precondition for the success of reforms aimed at enhancing the competition and efficiency of banking markets.

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  • Delis, Manthos D., 2012. "Bank competition, financial reform, and institutions: The importance of being developed," Journal of Development Economics, Elsevier, vol. 97(2), pages 450-465.
    • Handle: RePEc:eee:deveco:v:97:y:2012:i:2:p:450-465
    DOI: 10.1016/j.jdeveco.2011.05.012
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    More about this item

    Keywords

    Bank competition; Financial reforms; Institutional development;
    All these keywords.

    JEL classification:

    • P4 - Political Economy and Comparative Economic Systems - - Other Economic Systems
    • G2 - Financial Economics - - Financial Institutions and Services
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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