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Bank market concentration and bank efficiency in the European Union: a panel Granger causality approach

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  • Cândida Ferreira

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Abstract

The relationships between bank market consolidation and bank efficiency are of particular relevance in the European Union (EU), but they remain controversial. Using a panel Granger causality approach, this paper contributes to the literature, testing not only the causality running from bank market concentration to bank efficiency, but also the reverse causality running from efficiency to concentration. The results obtained confirm the relative complexity of these causality relationships, although they generally point to a negative causation running both from concentration to efficiency and from efficiency to concentration. These findings are in line with the Structure Conduct Performance (SCP) paradigm and the suggestions that the increase of the banks’ market power will contribute to inefficiency, since these banks will face less competition to obtain more output results with less input costs. Our results suggest that within this panel of all 27 EU countries over a relatively long time period, from 1996 to the onset of the 2008 financial crisis, the more cost-efficient commercial and savings banks operated in less concentrated markets. Copyright Springer-Verlag Berlin Heidelberg 2013

Suggested Citation

  • Cândida Ferreira, 2013. "Bank market concentration and bank efficiency in the European Union: a panel Granger causality approach," International Economics and Economic Policy, Springer, vol. 10(3), pages 365-391, September.
  • Handle: RePEc:kap:iecepo:v:10:y:2013:i:3:p:365-391
    DOI: 10.1007/s10368-013-0234-y
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Helen Louri & Petros M. Migiakis, 2016. "Bank Lending Margins in the Euro Area: The Effects of Financial Fragmentation and ECB Policies," LEQS – LSE 'Europe in Question' Discussion Paper Series 105, European Institute, LSE.
    2. Michal Jurek, 2014. "Role and impact of different types of financial institutions on economic performance and stability of the real sector in selected EU member states," Working papers wpaper36, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Helen Louri & Petros M. Migiakis, 2015. "Determinants of euro-area bank lending margins: financial fragmentation and ECB policies," Working Papers 198, Bank of Greece.
    4. repec:eee:jebusi:v:96:y:2018:i:c:p:15-41 is not listed on IDEAS
    5. Thi My Phan, Hanh & Daly, Kevin & Akhter, Selim, 2016. "Bank efficiency in emerging Asian countries," Research in International Business and Finance, Elsevier, vol. 38(C), pages 517-530.

    More about this item

    Keywords

    Concentration; Efficiency; Granger causality; European banks; G21; F36; D24; L11;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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