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Estimation of the banking sector competition in the CEE countries: The Panzar-Rosse approach

Arben Mustafa orcid id ; University “Kadri Zeka” Gjilan, Faculty of Economics, Gjilan, Republic of Kosovo and CERGE-EI Teaching Career Integration Fellow
Valentin Toçi orcid id ; University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo

Puni tekst: engleski pdf 551 Kb

str. 459-485

preuzimanja: 1.032



Competitive conditions in the banking sectors in the light of transition process in the
Central and Eastern Europe countries (CEE) has been subject of interest for
researchers and policy-makers, especially upon entry of foreign banks and
concentrated markets. In this paper the Panzar-Rosse approach is used to assess
competition of banking sectors in CEE. By using General Method of Moments on the
panel data for 300 banks for the period 1999-2009, empirical evidence indicates that
banks operating in the CEE exert monopoly behaviour. From the methodological
point of view, the findings suggest that using a price equation or controlling for total
assets in a Panzar-Rosse approach produces upwards biased and invalid estimates
of the H-statistic. Therefore, further support is provided for maintaining a reducedform
revenue equation when estimating a Panzar-Rosse model. The findings also
suggest that banks operating in the non-EU countries of the CEE region have exerted
stronger market power compared to the banks operating in the EU countries of this
region. Policy-makers should improve competitive conditions and general ‘enabling’
environment for the banking sectors, especially the non-EU countries of the CEE
region, while balancing competition-stability trade-off.

Ključne riječi

banks, competition, Panzar-Rosse approach, Central and Eastern Europe

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Podaci na drugim jezicima: hrvatski

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