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How does bank competition affect industrial growth and stability at different banking sector capitalization levels? Lessons from South Africa

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Listed:
  • Kolade Sunday Adesina

    (University of Milan)

Abstract

This paper investigates how bank competition and regulatory capital affect output growth and stability, using data for 21 manufacturing industries in South Africa between 2005 and 2020. The analysis reveals that higher bank regulatory capital is associated with reduced output growth and increased output volatility, while greater bank competition leads to higher growth and lower volatility. Additionally, the study finds that the interaction between bank competition and regulatory capital positively influences both output growth and stability. Consequently, while increased bank competition boosts growth and reduces volatility, it also mitigates the negative effects of higher regulatory capital on these outcomes. This conclusion, consistent across various competition measures, and estimation methods, highlights the need to pair stringent bank capital requirements with a competitive banking environment to maximize benefits for the manufacturing sector.

Suggested Citation

  • Kolade Sunday Adesina, 2025. "How does bank competition affect industrial growth and stability at different banking sector capitalization levels? Lessons from South Africa," ERSA Working Paper Series 129, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:129
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    References listed on IDEAS

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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