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Does bank competition alleviate credit constraints in developing countries?

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  • Leon, Florian

Abstract

Whether competition helps or hinders firms’ access to finance, particularly in the developing world, is in itself a much debated question in the economic literature and in policy circles. This paper considers the consequences of bank competition on credit constraints using firm level data covering 69 developing and emerging countries. In addition to the classical concentration measure, competition is assessed by computing three non-structural measures (Boone indicator, Lerner index and H-statistic). The results show that bank competition alleviates credit constraints and that bank concentration measure is not a robust predictor of a firm’s access to finance. The study highlights that bank competition not only leads to less severe loan approval decisions but also reduces borrower discouragement.

Suggested Citation

  • Leon, Florian, 2015. "Does bank competition alleviate credit constraints in developing countries?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 130-142.
  • Handle: RePEc:eee:jbfina:v:57:y:2015:i:c:p:130-142
    DOI: 10.1016/j.jbankfin.2015.04.005
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    More about this item

    Keywords

    Banking competition; Credit constraints; Developing countries; Discouraged borrowers;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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