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.org/0000-0002-1489-2973
; Republic of Kosovo and CERGE-EI Teaching Career Integration Fellow
Valentin Toçi
orcid.org/0000-0003-1062-918X
; University of Prishtina “Hasan Prishtina”, Faculty of Economics, Prishtina, Republic of Kosovo
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
Publication date:
22.12.2017.
Visits: 2.442 *