Estimation of the banking sector competition in the CEE countries: The Panzar-Rosse approach

Arben Mustafa () and Valentin Toçi ()
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Arben Mustafa: Assistant Professor, University “Kadri Zeka” Gjilan, Faculty of Economics, 60000 Gjilan, Republic of Kosovo and CERGE-EI Teaching Career Integration Fellow
Valentin Toçi: Associate Professor, University of Prishtina “Hasan Prishtina”, Faculty of Economics, 10000 Prishtina, Republic of Kosovo.

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2017, vol. 35, issue 2, 459-485

Abstract: Competitive conditions in the banking sectors in the light of transition process in the Central and Eastern Europe countries (CEE) has been subject of interest for researchers and policy-makers, especially upon entry of foreign banks and concentrated markets. In this paper the Panzar-Rosse approach is used to assess competition of banking sectors in CEE. By using General Method of Moments on the panel data for 300 banks for the period 1999-2009, empirical evidence indicates that banks operating in the CEE exert monopoly behaviour. From the methodological point of view, the findings suggest that using a price equation or controlling for total assets in a Panzar-Rosse approach produces upwards biased and invalid estimates of the H-statistic. Therefore, further support is provided for maintaining a reducedform revenue equation when estimating a Panzar-Rosse model. The findings also suggest that banks operating in the non-EU countries of the CEE region have exerted stronger market power compared to the banks operating in the EU countries of this region. Policy-makers should improve competitive conditions and general ‘enabling’ environment for the banking sectors, especially the non-EU countries of the CEE region, while balancing competition-stability trade-off.

Keywords: banks; competition; Panzar-Rosse approach; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: D4 G21 P2 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:35:y:2017:i:2:p:459-485

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