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Testing for competition in the Spanish banking industry: The Panzar-Rosse approach revisited

  • Luis Gutiérrez de Rozas


    (Comisión Nacional de Energía (CNE))

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    The aim of this paper is to assess the level of competition prevailing in the Spanish banking system. The current analysis employs a widely used non-structural methodology put forward by Panzar and Rosse (1987) —the so-called H-statistic— and draws upon a comprehensive panel dataset of Spanish commercial and savings banks covering the period 1986-2005. Standard estimates characterize a hump-shaped profile for the H-statistic throughout the time span under consideration. Nevertheless, a weighted procedure is subsequently performed in order to control for firm size and the number of branches. The estimation outcome reveals a gradual rising path for the H-statistic, thus suggesting a more competitive environment among larger banks. In both settings, a noteworthy increase in the degree of competition is identified at the turn of the eighties, when several liberalization-oriented policy measures came into force. The aforementioned findings discredit the widespread hypothesis which states that concentration impairs competition.

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    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0726.

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    Length: 45 pages
    Date of creation: Aug 2007
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    Handle: RePEc:bde:wpaper:0726
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