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An Analysis of Degree of Competition in Banking Sector of Pakistan through a Direct Measure of Market Contestability

Author

Listed:
  • Mahmood ul Hasan Khan

    (State Bank of Pakistan)

Abstract
This paper measures the degree of competition in the banking sector of Pakistan by using structural approach developed by Panzar and Rosse (PR) in context of market contestability. A reduced form revenue equation is estimated by using panel data of 26 banks. The sample period is from 1997 to 2007. Various tests on PR-H Statistics suggest that banking sector of Pakistan, as a whole, is consistent with a monopolistically competitive market structure. Failure to reject the null of long-run equilibrium of the banking sector, a key assumption of PR-H Statistic, lends more credence to the finding of underlying degree of competition

Suggested Citation

  • Mahmood ul Hasan Khan, 2009. "An Analysis of Degree of Competition in Banking Sector of Pakistan through a Direct Measure of Market Contestability," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 35-52.
    • Handle: RePEc:sbp:journl:41
    as

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    File URL: http://www.sbp.org.pk/research/bulletin/2009/Vol5No.2/MahmoodHasanKhan.pdf
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    References listed on IDEAS

    as
    1. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    2. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    3. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    4. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
    5. Jason Allen & Ying Liu, 2007. "A Note on Contestability in the Canadian Banking Industry," Discussion Papers 07-7, Bank of Canada.
    6. Stijn Claessens & Luc Laeven, 2005. "Financial Dependence, Banking Sector Competition, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 179-207, March.
    7. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
    8. Arby, Muhammad Farooq, 2003. "Structure and Performance of Commercial Banks in Pakistan," MPRA Paper 4983, University Library of Munich, Germany.
    9. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Staff Working Papers 04-24, Bank of Canada.
    10. Jason Allen & Walter Engert, 2007. "Efficiency and Competition in Canadian Banking," Bank of Canada Review, Bank of Canada, vol. 2007(Summer), pages 33-45.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Amir Jahan Khan, 2020. "Competitive Structure and Bank Loan Rate in Pakistan’s Banking Industry," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(3), pages 377-398.
    2. Mahmood ul Hasan Khan & Muhammad Nadim Hanif, 2019. "Empirical evaluation of ‘structure-conduct-performance’ and ‘efficient-structure’ paradigms in banking sector of Pakistan," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 682-696, September.

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    More about this item

    Keywords

    concentration; competition; market contestability; banking system;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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