Bank Competition and Economic Growth

Abstract

This paper provides rather scares evidence on the nexus between bank competition and economic growth in a unique developing economy; Sri Lanka for the period 1996-2018. The effect of competition in the Sri Lankan banking sector on economic growth, and the mechanisms through which competition affects growth are analyzed in the present paper. The VEC model used in this study was aimed at capturing independently the short and long-term effect of bank competition on economic growth. The competition is measured with Pazar-Ross H- Statistics. Contrary to the common wisdom, the study found evidence for negative effects of bank competition, on economic growth in the short run. However, in the long run, this effect is strong and positive. Further, the statistical results of this paper revealed that higher bank competition channels economic growth through interest rate and bank efficiency. These findings have important policy implications as it gives great insight into the complexity of competition related conduct in developing countries.

Keywords: {'name': 'bank competition, bank efficiency, economic growth, H-statistic, interest rate'}

Authors & affiliations

Champika Liyanagamage
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

DOI: 10.1353/mcb.2004.0038

DOI: 10.1016/S0304-405X(00)00072-6

DOI: 10.1596/1813-9450-4696

DOI: 10.1016/0378-4266(92)90032-U

DOI: 10.1016/0165-1765(82)90121-5

DOI: 10.1111/0022-1082.00339

DOI: 10.1016/0377-2217(78)90138-8

DOI: 10.1353/mcb.2004.0044

DOI: 10.1016/j.econmod.2014.10.025

Fry M. (1995). Money, Interest, and Banking in Economic Development. Baltimore, The Johns Hopkins University Press.

DOI: 10.2139/ssrn.1456083

DOI: 10.2139/ssrn.1471189

DOI: 10.1016/0304-4076(88)90045-0

DOI: 10.1016/0378-4266(91)90042-K

DOI: 10.2307/2946668

DOI: 10.24148/wp2007-23

DOI: 10.2307/2118406

DOI: 10.2307/1991279

Laeven, L. (2005). Banking Sector Performance in East Asian Countries: The Effects of Competition, Diversification, and Ownership, World Bank and CEPR.

DOI: 10.1016/0165-1765(82)90122-7

Liyanagamage, H.D.D. C. (2014). Rethinking the nexus between competition and efficiency in emerging economies: Evidence from Sri Lankan banking sector, International Journal of Economics, Business and Finance, 2(5), 1 – 15.

DOI: 10.4038/kjm.v4i1.7486

DOI: 10.1016/j.jbankfin.2006.10.028

DOI: 10.1016/0148-6195(95)00047-X

DOI: 10.1016/j.jeconbus.2014.03.002

Panzar, J., and Rosse, J. (1982). Structure, conduct and comparative statistics, Bell Laboratories Economic Discussion Paper.

DOI: 10.2307/2098582

DOI: 10.2139/ssrn.1240856

Shaffer, S. (1982). A nonstructural test for competition in financial market, Proceedings of a Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago, 225-243.

DOI: 10.2307/2601129

DOI: 10.1111/j.1354-7798.2006.00327.x

DOI: 10.1093/rof/rfp003