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An Empirical Evaluation of ‘Structure-Conduct-Performance’ and ‘Efficient-Structure’ Paradigms in the Banking Sector of Pakistan

Author

Listed:
  • Mahmood ul Hasan Khan

    (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    (State Bank of Pakistan)

Abstract

Based upon the indicators of market structure, this paper tests the relevance of Structure-Conduct-Performance (SCP), Relative Market Power (RMP), and the Efficient Structure (ES) paradigms for banking industry of Pakistan. We use a (balanced) panel data from 24 commercial banks of Pakistan from the year 1996 to 2015. Descriptive statistics and the formal tests suggest that: (a) there is a weak association between the indicators of market structure and banks’ performance in case of Pakistan; (b) the empirical evaluation results do not provide meaningful support to SCP or RMP paradigms; and (c) the ES paradigm is more relevant in case of Pakistan. At policy level, the findings of this paper suggest that the focus of policymakers should be to improve the efficiency of banking sector, as the excessive focus on indicators of market structure like concentration ratio to improve competition in the banking sector could be counterproductive.

Suggested Citation

  • Mahmood ul Hasan Khan & Muhammad Nadim Hanif, 2017. "An Empirical Evaluation of ‘Structure-Conduct-Performance’ and ‘Efficient-Structure’ Paradigms in the Banking Sector of Pakistan," SBP Working Paper Series 90, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:90
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    References listed on IDEAS

    as
    1. Samad, Abdus, 2008. "Market structure, conduct and performance: Evidence from the Bangladesh banking industry," Journal of Asian Economics, Elsevier, vol. 19(2), pages 181-193, April.
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    3. Arby, Muhammad Farooq, 2003. "Structure and Performance of Commercial Banks in Pakistan," MPRA Paper 4983, University Library of Munich, Germany.
    4. Mahmood ul Hasan Khan, 2009. "An Analysis of Degree of Competition in Banking Sector of Pakistan through a Direct Measure of Market Contestability," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 35-52.
    5. Al-Muharrami, Saeed & Matthews, Kent, 2009. "Market Power versus Efficient-Structure in Arab GCC Banking," Cardiff Economics Working Papers E2009/7, Cardiff University, Cardiff Business School, Economics Section.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Structure-Conduct-Performance; Efficient-Structure; Competition; Banking Sector;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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