Estimating a theoretical model of state banking competition using a dynamic panel: the Brazilian case

Abstract

In this paper we set up a model of regional banking competition based on Bresnahan (1982), Lau (1982) and Nakane (2002). The structural model is estimated using data from eight Brazilian states and a dynamic panel. The results show that on average the level of competition in the Brazilian banking system is high, even tough the null of perfect competition can be rejected at the usual significance levels. This result also prevails at the state level: Rio Grande do Sul, São Paulo, Rio de Janeiro, Pernambuco and Minas Gerais have high degree of competition.<br>O presente artigo propõe um modelo regional de competição bancária baseado nas contribuições de Bresnahan (1982), Lau (1982) e Nakane (2002). O modelo estrutural formuladoé estimado utilizando as informações para oito estados brasileiros e um painel dinâmico. Os resultados mostram que, na média, o nível de competição no sistema bancário brasileiro é alto, embora a hipótese nula de competição perfeita possa ser rejeitada aos níveis usuais de significância. De uma forma geral, este padrão também prevalece nos estados: Rio Grande do Sul, São Paulo, Rio de Janeiro, Pernambuco e Minas Gerais têm elevado grau de competição

Banking competition in the Brazilian economy

“…Belaisch (2003) also makes use of panel data and does not reject the hypothesis of competition in the Brazilian banking sector. At the aggregate state level, Sanches et al (2009) estimate a dynamic panel and claim that the level of banking competition is high across the major Brazilian states.…”

“…Belaisch (2003) fi nds results even more discrepant, with the H-statistics so high that in some cases it is not possible to reject the hypothesis of perfect competition. At the aggregate state level, Sanches et al (2009) claim that the degree of banking competition is high, but not perfectly competitive, across the major Brazilian states.…”