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Original scientific paper

https://doi.org/10.18045/zbefri.2017.2.459

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

Arben Mustafa orcid id orcid.org/0000-0002-1489-2973 ; Republic of Kosovo and CERGE-EI Teaching Career Integration Fellow
Valentin Toçi orcid id orcid.org/0000-0003-1062-918X ; University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo


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Abstract

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.

Keywords

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

Hrčak ID:

191398

URI

https://hrcak.srce.hr/191398

Article data in other languages: croatian

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