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Asymmetric relationship between competition and innovation: Evidence from banks in the Eurozone

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  • Tee, Kenny
  • Syriopoulos, Konstantinos
  • Rubbaniy, Ghulame
  • Salim, Amna

Abstract

This study examines the asymmetric relationship between competition and innovation in Eurozone banking, using data from the original 11 Economic and Monetary Union member states. Employing the technology gap ratio for innovation and the Lerner index and Boone indicator for competition, we find an inverted-U pattern: innovation initially rises with competition but declines beyond a threshold. Granger causality tests confirm bidirectional causality on the upward slope but none on the downward, highlighting nonlinearity. These findings suggest that moderate competition fosters innovation, while excessive rivalry stifles it. Policymakers should balance competition to maximize innovation without undermining long-term technological progress.

Suggested Citation

  • Tee, Kenny & Syriopoulos, Konstantinos & Rubbaniy, Ghulame & Salim, Amna, 2025. "Asymmetric relationship between competition and innovation: Evidence from banks in the Eurozone," The Journal of Economic Asymmetries, Elsevier, vol. 32(C).
    • Handle: RePEc:eee:joecas:v:32:y:2025:i:c:s1703494925000349
    DOI: 10.1016/j.jeca.2025.e00434
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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