Wednesday, January 12, 2011
Posted by D. Daniel Sokol
Asli Demirguc-Kunt, World Bank - Development Research Group (DECRG) and Maria Soledad Martinez Peria, World Bank - Development Research Group (DECRG) provide A Framework for Analyzing Competition in the Banking Sector: An Application to the Case of Jordan.
ABSTRACT: This paper proposes a framework to analyze competition in the banking sector using Jordan as an example. In particular, the paper pursues a multi-pronged approach to analyze competition including (i) an examination of the extent to which the market is contestable (that is, has low barriers to bank entry and exit), (b) an evaluation of the behavior of bank spreads, and (iii) an assessment of non-structural and direct measures of bank competition such as the H-statistic and the Lerner Index. This approach provides a more comprehensive framework to examine competition in the banking sector, compared with the commonly used alternative of looking only at bank concentration figures. In the case of Jordan, the analysis indicates that although concentration has declined, competition in the country is low and has decreased over time.