非洲经济研究联合会 -非洲的银行竞争：机构质量和跨境银行业重要吗？（英）-2021-58正式版

BankCompetitioninAfrica:DoInstitutionalQualityandCross-borderBankingMatter?MohammedAmiduResearchPaper458BringingRigourandEvidencetoEconomicPolicyMakinginAfricaBankCompetitioninAfrica:DoInstitutionalQualityandCross-borderBankingMatter?ByMohammedAmiduUniversityofGhanaAERCResearchPaper458AfricanEconomicResearchConsortium,NairobiAugust2021ThisresearchstudywassupportedbyagrantfromtheAfricanEconomicResearchConsortium.Thefindings,opinionsandrecommendationsarethoseoftheauthor,however,anddonotnecessarilyreflecttheviewsoftheConsortium,itsindividualmembersortheAERCSecretariat.Publishedby:TheAfricanEconomicResearchConsortiumP.O.Box62882-CitySquareNairobi00200,KenyaISBN9789966-61-156-7©2021,AfricanEconomicResearchConsortium.Contents1.Introduction......................................................12.EvolutionofBankinginAfricaandliteraturereview....................43.Dataandmethodology.............................................84.Empiricalresults..................................................165.Conclusionandpolicyimplications.................................40Reference..........................................................41Appendix...........................................................46ListoftablesTable1:EstimatesofbankcompetitionusingBoonemethod............18Table2:AveragebankcompetitioninAfrica............................20Table3:Pair-wisecorrelationcoefficientbetweenselectedvariables.....22Table4:Determinantsofbankcompetitionwithinstitutionalquality.....24Table5:Determinantsofbankcompetitionwithcross-borderbanking................................................26Table6:DeterminantsofbankcompetitionusingBooneindicatorandLernerindex.....................................28Table7:Thesensitivityofcompetitiontocross-borderbankingandinstitutionalquality.....................................30Table8:Determinantsofbankcompetition:Controllingforbankingfreedom......................................32Table9:Determinantsofbankcompetition:Controllingforcapitalstringent..................................................34Table10:Determinantsofbankcompetition:Controllingforriskexpropriation.....................................36Table11:Determinantsofbankcompetition:Controllingregulatoryvariables......................................38TableA1:Samplecoverageandaverageofcountrylevelvariables.......46TableA2:Bank-specificvariables:Averagesfortheperiod2002-2009.....47TableA3:Summaryofvariablesdefinitionandsources..................48ListoffiguresFigure1:OwnershipstructureofbanksinAfrica.........................5FigureA1:TrendinbankcompetitionforregionsofAfricaovertime......17FigureA1:TrendinbankcompetitionforregionsofAfricaovertime......49ListofabbreviationsandacronymsBMCECBBBanqueMarocaineduCommerceExtérieurCross-borderBankingCPIConsumerPriceIndexEACEastAfricanCommunityECOWASGDPICRGIQEconomicCommunityofWestAfricanStatesGrossDomesticProductInternationalCountryRiskGuideInstitutionalQualityNEIOSCPSADCUBANewEmpiricalIndustrialOrganizationStructureConductPerformanceSouthernAfricanDevelopmentCommunityUnitedBankforAfricaAbstractThisstudyanalysestheimplicationsofcross-borderbanking(CBB)andinstitutionalquality(IQ)forbankcompetitioninAfrica.Weapplyatwo-stepestimationprocedureusingbank-levelpaneldatafor29Africancountries.Instepone,theBooneindicatorandtheLernerindexareusedtogaugebankcompetitioninagivencountryinAfrica.Inthesecondstep,weanalysethesourcesofbankcompetition,placingemphasisontheimpactofCBBandIQ.Theresultssuggestthatcompetitionincreasedintheperiod2002-2005,beforedecreasingsomewhatbetween2006and2007andincreasingagainthereaꢀer.Theresultsalsoshowthatcross-borderbankingenhancesbankcompetitioninAfricancountrieswithstrongergovernancestructuresandinstitutionalquality.Ourresultsarerobusttoanarrayofcontrols,includinganalternativemethodology,variablespecifications,andtheregulatoryenvironmentsthatbanksoperatein.1.IntroductionAsoundbankingsectorcompetitionisofgreateconomicimportancebecauseitprovidesfortheefficientproductionoffinancialservices,improvesthequalityoffinancialproductsandthedegreeoffinancialinnovation(ClaessensandLaeven2004).Inaddition,literaturehasidentifiedsixreasonswhycompetitioninthefinancialsectorisimportant:firstly,forfirmsandhouseholdstoaccessfinancialservices(Becketal,2004);secondly,forproperfunctioningofthefinancialsector(ClaessensandLaeven,2005);thirdly,forstabilityofthefinancialsystem(Boydetal,2009);fourthly,forefficientmanagementoffinancialintermediaries(BergerandHannan,1989);fiꢀhly,forimprovementofmonetarypolicytransmissionthroughtheinterbankmarketrates(vanLeuvensteijnetal,2010);andfinally,foroverallindustrialandeconomicgrowth(AllenandGale,2004).Competitioncanstimulateinnovation,lowerpricesandincreasethequalityofproductsandservicesproduced,whichinturnenhancechoiceandwelfare.Furthermore,Zarutskie(2011)contendsthatcompetitionenablesbankstoeitherspecializeincertaintypesoflending,orimprovetheirscreeningabilitiesforborrowersinparticularsegmentsofcreditmarket,andthisenablesbankstobecomemorecostefficientrelativetotheircompetitors.DickandLehnert(2010)provideevidencetosuggestthatcompetitionincreasesbanks’lendingandalsolowersloandefault.InAfrica,theissueofcompetitioninthefinancialservicessectorhasimportantimplications,especiallyforenhancingproductiveefficiency,financialstability,andeffectiveregulationandsupervision.Theseimplications,accordingtoKasekendeetal(2009),havepossiblepositivespillovereffectstotherestoftheeconomy,orindeedfromoneAfricancountrytotherestofthecontinent.Thus,efficientlendingstrategiesofsomebanksinresponsetocompetitionincreasesbanks’profitabilitylevelrelativetotheircompetitors.Consequently,thedevelopmentofreliableandeasilyunderstandableindicatorsofcompetitionisahighlyrelevantendeavour(Carbóetal,2009).InAfrica,however,anunderstandingoftheunderlyingmechanismsthatdrivetheevolutionofcompetitionisimportanttogovernmentagenciestaskedwithensuringthatcompetitiveoutcomesprevail.Inthebankingindustry,assessmentofcompetitionhasalongempiricaltradition(CasuandGirardone,2006;Degryseetal,2009).However,evidencerelatedtobankcompetitioninAfricaisscarce.TheinternationalevidenceoncompetitionpresentedinpreviousstudiesincludesasmallnumberoflargeAfricancountries(ClaessensandLaeven,2004;Clarkeetal,2003;Turk-Ariss,2010).Giventheimportanceofbank12researChpaper458competitiontoAfricaeconomicdevelopment,(AfricanCompetitivenessReport,2009),areliable,appropriateandeasilyunderstandablemeasureofcompetitionisneeded.Kodongoetal(2015)showthattheinstitutionalqualityisimportanttoabankattheplanningphaseofbanks’foreignexpansiondecisionsandthatbanksconsidergoingabroadduetocompetitivepressurescurrentlyexertedbytheirstronger,moreefficientcompetitorsaswellasbytheirdomesticcompetitorshavingexpandedabroad.Moreso,mostpreviousstudiesdonotaccountforthepoliticalandinstitutionalfactorsthatarelikelytoshapecompetitionincountriescharacterizedbyavarietyofimperfections,whichiscausedbyalackofdevelopment,weakinstitutions,poorgovernanceandbarrierstoentry.Theexistenceofcross-borderbankscanincreasecompetition,whichisbeneficialtobankstability(BoydandDeNicolo,2005).Carlson(2004)isoftheviewthatcross-borderbanksarelesslikelytosurviveandthedurationofsurvivalisalsorelativelymuchshorter.Theentryofcross-borderbanksorforeignbankshasseveralimplicationsforthehostcountries,especiallysub-SaharanAfrican(SSA)countries:tougheninter-bankcompetitionaswellasensuregreateruseofadvancedtechnologiestoimprovebusinessskillsandservices,increasefinancialserviceaccess,maybringaboutgreatstability,improvethedevelopmentofthelocalbankingsupervisionandlegalregulations,increasetransparencyandtheavailabilityofinternationalcapital,andboostfinancialandeconomicperformanceofborrowers(Clarkeetal,

2003;Claessens,2009;Mishkin,2007;CullandPeria,2013;Chopra,2014).However,theeffectsofcross-borderbankingoncompetitioninAfricaappeartobevaryingandalsodependantonsomeconditions,includingefficientaccountingstandards;collectionofcollateral;improvedinformation;stronginstitutions;privatizationofstate-ownedbanks;andtheremovalofentrybarriers(Sacerdoti,2005;DemetriadesandFielding,2012).Thisisthegapwhichthisstudyaddresses.Wemeasurecompetitionandanalysethecross-borderbankingandinstitutionalqualityeffectsonbankcompetitioninAfrica.Apartfromanextensioninthescopeofthecurrentliterature,thisstudymakesthefollowingtwoimportantcontributionsregardingdevelopingandemergingeconomies.First,weestimatecompetitionamongbanksinAfricabyapplyinganewmeasureofcompetition,theBooneindicator.Thisapproachtomeasurecompetitionisinnovativeinthesensethatcompetitioncanbemeasuredforvariousproductssuchastheloanmarketsandforseveraltypesofbanks,suchascommercial,savings,merchant,developmentandco-operativebanks.AnothermeritoftheuseofBooneindicatoristhatitrequiresrelativelylittledataandalsoallowstheestimationofcompetitiononanannualbasiswherethedevelopmentofcompetitiveenvironmentcanbeexaminedandanalysedovertheperiod(vanLeuvensteijnetal,2010).Inaddition,weemployLernerindexasalternativemeasureofbankcompetition.TheLernerindexrepresentsthepricemark-upovermarginalcost,andtoavoidanybiasemanatingfromabankexercisingmarketpowerinthedepositsmarket,andgiventhatthereisnoconsensusintheliteratureregardinghowbesttoassessthedegreeofbankmarketpower(Carbóetal,2009),thisstudyemploysthreedifferentspecificationsofLerner:aconventionalLerner(Bergeretal,2009),afunding-adjustedLerner(MaudosandDeGuevara,2007),andefficiency-adjustedLerner(Koetteretal,2012).Secondly,weusetheresultsinthefirstobjectivetoanalysefactorsthatexplainthedifferencesinbankcompetition.Here,weevaluatehowcross-borderbankingandthevariouscountries’institutionalstrengthshapebankcompetitioninAfrica.Ourresultssuggestthatcompetitionincreasedintheperiod2002-2005,beforedecreasingsomewhatbetween2006and2007andincreasingagainthereafter.Differencesacrossregionalgroupsareobserved.IncentralAfricaandpartofsouthernAfricancountries,competitionontheaveragewashighbetween2003and2005,butstarteddecreasingthereaꢀerto2008.Innortherncountries,thetrendisratherdifferent.Thebankcompetitionisatitslowestin2005,butgraduallyincreasesaꢀer2007.Finally,inthesouthernAfricancountries,bankcompetitionisrelativelystableeventhoughtheobservedestimatesarelowerthanthatofnorthernAfricancountriesin2006and2007.Onthedeterminantsofbankcompetition,theresultssuggestthatcross-borderbankingenhancesbankcompetitioninAfricancountrieswithstrongergovernancestructuresandinstitutionalquality.Theseresultsarerobusttoanarrayofcontrols,includinganalternativemethodology,variablespecificationsandtheregulatoryenvironmentsthatbanksoperatein.Therestofthestudyisorganizedasfollows.Section2describestherecentevolutionofbankinginAfricaanddiscussessalientliterature.Insection3,wepresenttheestimablemodelsandthedataset;whileSection4discussestheempiricalresults.Section5concludesandofferspolicyimplications.34researChpaper4582.EvolutionofBankinginAfricaandliteraturereviewBankinginAfrica:SomestylizedfactsAfricanbankingsectorhasundergonechangesoverthepasttwodecades.Duringthe1980s,bankinginAfricawasdominatedbygovernment-ownedbanks.Restrictiveregulation,financialliberalization,institutionalandregulatoryupgradesandglobalizationhavechangedthefaceoffinancialsystemsacrosstheregion.Mostcountriesnowhavedeeperandmorestablefinancialsystems,thoughchallengesofconcentrationandlimitedcompetitionandhighcostpersist(BeckandCull,2014).OnecommoncharacteristicofAfricanbankingsectoristhatalargenumberofbanksinvestingovernmentsecuritiesinsteadoflendingtotheprivatesector.Forexample,in2011,credittotheprivatesectoraveraged78%ofGDP(comparedto132.5%forotheremergingmarketsinEastAsiaandthePacific).Priortothe2008financialcrisis,theratioofliquidtototalliabilitiesofsub-SaharanAfrican(SSA)banksaveragedaround30%,whilethatofotherdevelopingcountrieswasaround4%(Allenetal,2014).Thereisalsoevidencetosuggestthatnon-competitivemarketstructureinsomeoftheeconomieshashamperedfinancialintermediation(Biekpe,2011).InpromotingcompetitioninAfricanbankingsystems,cross-borderbanksplayedanimportantroleduringtheperiod.Forexample,SouthAfrica’sStandardBankcurrentlyoperatesin15sub-SaharanAfricancountries.Togo-basedEcobanktripleditsaffiliatenetworkinAfricabetween2000and2013from11to32countries,whileNigeria’sUnitedBankforAfrica(UBA)increaseditsfootprintfromoneto19countries.Morocco’sAttijariwafaBankhasapresencein12Africancountries,andMorocco’sBMCEwentfromtwoto18countriesoverthesameperiod.Inaddition,severalcommercialbanksdomiciledinKenyahaverecentlyextendedtheirportfolioacrossKenyanborders,withmorethan11bankshavingforeignoperationsbytheendof2012(seeFigure1).Whilecross-borderbankpenetrationhasincreasedfromalreadyhighlevelsoverthepastdecade,thecompositionoftheforeignbankpopulationhaschangedsubstantially.Banksfromemergingmarkets,andcriticallyfrominsideAfrica,havegainedimportanceoverthepastyears.TheinfluxofforeignbanksseemstohaveseveraladvantagesthatarespecifictoAfrica:internationalbankscanhelpfostergovernance;theycanbringinmuch-neededtechnologyandexperiencethatshouldtranslateintoincreasedefficiencyinfinancialintermediation;andtheycanhelpexploitscaleeconomiesinsmallhostcountries.5BankCompetitioninafriCa:DoinstitutionalQualityanDCross-BorDerBankingmatter?Figure1:OwnershipstructureofbanksinAfricaSource:Becketal(2014)Onhowqualityofinstitutioninfluencescompetition,ClaessensandVanHoren(2014)suggestthatbankswhichareusedtoworkingincountrieswithstrong(weak)institutions,arelativehigh(low)institutionalqualityinthehostcountrypositivelyimpactthecross-borderbankentry.Economicexpansion,legal,culturalandgeographicalproximitytothehostcountryplayakeyroleinattractingforeignbankstoemergingmarketsandforthatmatter,increasebankcompetitioninthehostcountryinAfrica(HryckiewiczandKowalewski,2010).Nonetheless,especiallyinAfrica,withmanysmall,risky,andopaqueenterprises,thedarksideofforeignbankentrycanbecomeobvious,evenmoresoincountriesinwhichforeignbankshavecapturedalmost100%ofthebankingmarket.Theabsenceofasoundcontractualandinstitutional,informationalframeworkreducesthefeasibilityofsmallbusinesslendingfurtherandthusthepositiveeffectofforeignbankentry(ClaessensandVanHoren,2014).LiteraturereviewPreviousliteratureoncompetitioninbankingfocusesonmarketstructure-performancelinkagesoriginatingfromtheStructure-Conduct-Performance(SCP)paradigmandtheChicagoRevisionistSchool(Demsetz,1973;Hannan,1991).TheSCPparadigmononehandsuggeststhatasmallnumberofbanksareabletocolludeeitherimplicitlyorexplicitly,oruseindependentmarketpowertochargehigherpricesbypayinglowerratesondepositswhilecharginghigherratesonloanssoastoearnabnormalprofits.Theotherefficientstructureviewcontestedthatfindingevidenceofapositiverelationshipbetweenconcentration1andprofitability(orprice1ItismeasuredeitherbytheconcentrationratioortheHerfindahlindex).6researChpaper458costmargin)doesnotnecessarilyinfercollusivebehaviourasitmaysimplyreflecttherelationshipbetweensizeandefficiency.Largerbanksgainfromscaleandotherefficiencyadvantages;therefore,moreconcentratedmarketsareinherentlymoreprofitable.However,CasuandGirardone(2006)andDegryseetal(2009)arguesthattheextenttowhichbanksareabletoearnhighprofitsthroughtheexerciseofindividualorcollectivemarketpower,orasaconsequenceofsuperiorefficiency,continuesasathemeinsalientliterature.Laterresearchdrawsonthetheoryofcontestablemarketsanditsnewempiricalindustrialorganization(NEIO)counterparttoemphasizetheinfluenceofpotentialaswellasactualcompetition.Thefocusisoncompetitiveconductoffirmsinresponsetochangesindemandandsupplyconditions.Bresnahan(1982)andLau(1982)positthatthemark-uptestinvolvesestimatingastructuralmodel,incorporatingdemandandcostequationstogetherwiththeprofit-maximizingcondition,wheremarginalrevenueequalsmarginalcost.Theparametersofthemodelcanbeestimatedusingdataeitheratindustryleveloratfirmlevel,andcanbeusedtoderiveanindicationofthenatureofagivenfirm’sconjecturalvariation.This,inturn,indicateswhetherprice-settingconductbyeachfirmisconsistentwithperfectcompetition,monopolisticcompetitionormonopoly.TheRosse–Panzartestisbasedonempiricalobservationoftheimpactonfirm-levelrevenuesofvariationsinthepricesofthefactorsofproductionthatareusedasinputsintheproductionprocessesofagroupofcompetingfirms(PanzarandRosse,1987).Builtintothetestisanexplicitassumptionofprofit-maximizingbehaviouronthepartofthefirms.PanzarandRosse(1987)showthattheH-statistic,definedassumoftheelasticitiesofafirm’stotalrevenuewithrespecttoeachofitsfactorinputprices,differunderperfectlycompetitive,imperfectlycompetitiveandmonopolisticmarketconditions.ThemarketisdeemedamonopolywherethevalueofH-statisticisequaltoorsmallerthanzero,avaluebetweenzeroandonepointstomonopolistictypesofcompetition,andavalueofoneindicatesaperfectcompetitivemarket.Thesemeasureshavebeenwidelyappliedinbankingresearch(ClaessensandLaeven,2004;GoddardandWilson,2009).Anumberofstudiessuggestthatindustrystructureandregulatoryenvironmentareimportantdeterminantsofbankcompetition.Barthetal(2004)findthattighteningentryrequirementsreducesbankefficiency,whichleadstohighernetinterestmarginandoverheadcosts.Restrictionsonforeignbankparticipationleadtoanincreaseinfinancialinstability.Demirguc-Kuntetal(2004)andGoddardetal(2011)arguethatrestrictiononforeignbankentryandthescopeofbankactivitiesleadstoalackofcompetition.Thus,countrieswithliberalpoliciestowardforeignbankinvolvementindomesticbankingandfewerrestrictionsonentryandscopeofactivitiestendtobemorecompetitive,morestableandmoreefficient(HasanandMarton,2003;ClaessensandLaeven,2004).CurrentliteraturedrawsontheinsightsaffordedbytheSCPandNEIOliteraturetoassesstherelationshipbetweentheelasticityofperformanceandmarginalcost.TheBoone(2008)indicatorgaugesthestrengthoftherelationbetweenefficiency(measuredintermsofaverageormarginalcost)andperformance(measuredintermsofmarketshareorprofitability).Ingeneral,thisindicatorisbasedontheefficientstructureview,whichassociatesperformancewithdifferencesinefficiency.Underthishypothesis,moreefficientbanks(i.e.,bankswithlowermarginalcosts),achievesuperiorperformanceattheexpenseoftheirlessefficientcounterparts.Asaconsequence,thereisamonotonicincreaseinthedegreeofcompetitionwhenfirmsinteractmoreaggressivelyandwhenentrybarriersdecline.Financialreformsandthequalityofinstitutionsarealsoimportantfactorsinpromotingbankcompetition.Delis(2012)findsthatfinancialreformsincreasebankcompetitionincountrieswithstrongerinstitutions.Thisisnotthecaseinbankingindustrieslocatedincountrieswithweakinstitutionsandalowlevelofinstitutionaldevelopment.Structuralandinstitutionalimpedimentsareofparticularimportancetobanksindevelopingcountries.Cross-borderbankingenhancescompetitionasitallowsfreeentryandexitofforeignbanks,integratesnationaleconomies,governance,andproducescomplexrelationsofmutualinterdependence(Norris,2000).ResearchshowsthatCross-borderbankingispositivelylinkedwithhighercompetitioninhostcountries(Claessensetal,2000,andClaessensandLaeven,2004).However,evidencerelatedtocross-borderbankingandinstitutionalqualityeffectsonbankcompetitioninAfricaisscarce.Thisiswherethecurrentstudyseekstocontribute.78researChpaper4583.DataandmethodologyInthissection,weapplytwodifferentindicatorstogaugebankcompetitioninAfrica.Weemploytwo-stageestimationapproach.Instageone,bankcompetitioninagivencountryismeasuredusingBooneindicatorandLernerindex.Inthesecondstage,thedeterminantsofcompetitionisanalysedfocusingoncross-borderbankingandinstitutionalquality.Inordertoensuretherobustnessofourfindings,andconsideringthefactthattheliteratureonmarketstructureisinconclusiveregardingthebestmeasureofcompetitiveenvironments(Carbóetal,2009),thestudyemploysthreeadditionalindicatorstomeasurethedegreeofmarketpower:conventionalLernerindex(Bergeretal,2009)afunding-adjustedLernerindex(MaudosandDeGuevara,2007)andanefficiency-adjustedLernerindex(Koetteretal,2012).Stage1:EstimatingthelevelofcompetitionBooneindicatorTheBooneindicatorisbasedontheefficientstructurehypothesisthatlinksperformancewithdifferencesinefficiency.Thustheindicatorsuggeststhatincreasedcompetitionallowsbankingmarkettotransferconsiderableportionsofassetsfromlowprofittoamarketofhigherprofits.Thismeansthatasthebankingindustrybecomesmorecompetitive,givensomelevelofefficiencyofeachbank,theprofitsofthemoreefficientbanksincreasesrelativetothelessefficientones.TheempiricalestimationofBoonemodelforbanki

is:lns

=+ln(mc

)itit(1)Where:sit

measurestheloanmarketshareofbanki

attimet

;theparameterβ

istheBooneindicator;andmc

isthemarginalcost.FollowingTabaketal(2012)marketitshare,sit

isregressedonthemarginalcosttoobtaininformationonhowmarketshareco-varieswithcosts.Thatis,efficiencygainsleadtoloweroutputprices,whichinturnincreasesmarketshares.Asmarginalcostcannotbeobserveddirectly,mcitisderivedfromatrans-logcostfunction:9BankCompetitioninafriCa:DoinstitutionalQualityanDCross-BorDerBankingmatter?

2233

klnCost

=

+

lnq

+

lnqit2+

lnW

+

lnq

lnW

+it01itkt

k,it

it

k,itk

=1k

=13332

t,ij

k

lnW

lnW

+

(

i

/2)lnW2+

trend

+kijk,itj,itk=1j=1i=1k=13

lnW

trend

+vlnq

trend

+jit,ijtji=1(2)qWhere:Costit

isthebank’stotalcostsincludingfinancialandoperatingcost;anditrepresentsaproxyforbankoutputmeasuredastotalassets.W

,W

andW

indicatetheinputpriceofdepositfunds,labourandcapital,andarecalculatedastheratio123ofinterestexpensestototaldepositsandmoneymarketfunds,labourcosttototalassets,andotheroperatingexpensestototalassets,respectively.Thecostfunctionisestimatedseparatelyforeachbankandyearinthesample.Oncethecostfunctionisestimated,itsfirstderivativewithrespecttotheoutputevaluatedforeachbankinthesampleisthemarginalcost:costit

3

+

lnq

+

k

lnWk,it

+

vTrend

12it

itmcit

=

(3)qit

k

=1Intheempiricalsetup,abank-specificeffectisincludedtoallowforheterogeneity.Again,asthestudyanalysescompetitionovertime,theBooneindicatorisestimatedmodelasfollows:

T

T

−1lnsit

=

+

d

lnmc

+

d

+

it(4)ttitttt=1t=1Where:s

measurestheloanmarketshareofbanki

attimet

;mc

isderivedfromaitittrans-logcostfunction:isthemarginalcostasestimatedinequations2and3;d

isat

isttimedummy;andistheerrorterm.AstheBooneindicatoristimedependent,itestimatedseparatelyforeachyearforeachcountryreflectingchangesincompetitionovertime.Marketsharemayreducemarginalcostduetothemarketpower.Howevertheinfluencesonabank’smarketpowerthroughhighermarketsharecouldcauseittoadjustitsmarginalcost.Itisexpectedthatbankswithlowmarginalcostgain2marketshare(thatis,β<0).Competitionthustendstoincreasethiseffectasmoreefficientbanksoutperformlessefficientones.Thisimpliesthatthemorenegativeβis,themoreintensecompetitionbecomes.However,insom