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A Formal Test of Competition in the Banking Sector of Pakistan: An Application of PR-H Statistic

Author

Listed:
  • Mahmood ul Hasan Khan

    () (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    () (State Bank of Pakistan)

Abstract

This study explores competition in the banking sector of Pakistan in the context of transformation in its structure and business environment since the implementation of financial sector reforms in the country. Instead of relying on the changes in the market structure indicators (like concentration ratio), we employ widely used Panzar and Rosse H statistic as a formal test of competition. PR-H statistic is estimated by using a balanced panel data comprising 24 commercial banks operating in Pakistan from the year 1996 to 2015. The results suggest that the banking sector of Pakistan exhibits the characteristics of monopolistic and perfectly competitive market structures.

Suggested Citation

  • Mahmood ul Hasan Khan & Muhammad Nadim Hanif, 2017. "A Formal Test of Competition in the Banking Sector of Pakistan: An Application of PR-H Statistic," SBP Working Paper Series 91, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:91
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    File URL: http://www.sbp.org.pk/publications/wpapers/2017/wp91.pdf
    File Function: First version, 2017
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    More about this item

    Keywords

    Competition; Banking Market Structure; Panzar and Rosse H statistic;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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