Bank Competition and Credit Constraints in Developing Countries: New Evidence

Florian Leon

Working Papers from HAL

Abstract: Whether competition helps or hinders small firms' access to finance is in itself a much debated question in the economic literature and in policy circles, especially in the developing world. Economic theory offers conflicting predictions and empirical contributions provide mixed results. This paper considers the consequences of interbank competition on credit constraints using firm level data covering 70 developing and emerging countries. In addition to the classical concentration measures, competition is assessed by computing three non-structural measures (Lerner index, Boone indicator, and H-statistics). The results show that bank competition alleviates credit constraints, while bank concentration measures are not robust predictors of a firm's access to finance. Findings highlight that bank competition not only leads to less severe loan approval decisions but also reduces borrowers' discouragement. In addition, a secondary result of this paper documents that banking competition enhances credit availability more by reducing prices than by increasing relationship lending.

Keywords: discouraged borrower; developing countries; access to credit; Bank competition (search for similar items in EconPapers)
Date: 2014-06-27
New Economics Papers: this item is included in nep-ban and nep-com
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Related works:
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2015)
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2015)
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2014)
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2014)
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2014)
Working Paper: Bank Competition and Credit Constraints in Developing Countries: New Evidence (2014)
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