What are the driving forces of bank competition across different income groups of countries?

Abstract

This paper rigorously investigates the determinants of bank competition for 146 countries over the sample period 1999–2011. The results employing both the Lerner index and the Boone indicator, reveal the distinctive characteristics of the competition drivers across different income groups of countries. Amongst other things, a concentrated banking system jeopardises competitiveness in developing economies, however, such a causal nexus is absent for advanced and emerging economies. Contestability and institutional development seem to boost competition in less-developed banking systems, whereas inter-industry competition and financial freedom are beneficial to advanced banking systems. These findings survive robustness tests.