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What is the effect of banking concentration and competition on financial development? An international assessment

Claudio Oliveira De Moraes (Central Bank of Brazil, Rio de Janeiro, Brazil) (Coppead - Graduate Business School, Rio de Janeiro, Brazil)
José Americo Pereira Antunes (Central Bank of Brazil, Rio de Janeiro, Brazil)
Márcio Silva Coutinho (Caixa Economica Federal, Rio de Janeiro, Brazil)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 12 October 2020

Abstract

Purpose

This paper analyzes the effect of the banking market (concentration and competition) on financial development.

Design/methodology/approach

In order to estimate the effects of banking concentration and competition on financial development, we conducted an empirical analysis using the System Generalized Method of Moments (S-GMM) through a dynamic panel data model.

Findings

The main results suggest that concentration and competition affect financial development. In particular, an increase in bank concentration may inhibit the country's financial development, due to the lack of competition. Our results do not confirm the controversy between concentration and competition, suggesting that concerning financial development, concentration is the reverse of competition.

Practical implications

The results of this study add a new perspective on banking market power: a financial system concentrated or uncompetitive constrains financial development.

Originality/value

The literature that combines the investigation of the effects of banking market structure (concentration) and banking market conduct (competition) on financial development is scarce. Although a concentrated banking sector can reduce competition through barriers to new entrants (which could expand financial services offer), it is also true that a concentrated banking sector can be competitive. In order to avoid the controversy, our paper chooses to look into a comprehensive approach considering independent measures of bank concentration and bank competition, which together refer to the banking framework.

Keywords

Citation

De Moraes, C.O., Antunes, J.A.P. and Coutinho, M.S. (2020), "What is the effect of banking concentration and competition on financial development? An international assessment", Journal of Economic Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JES-03-2020-0140

Publisher

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Emerald Publishing Limited

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