Does Monopolistic Competition Exist in the Mena Region? Evidence From the Banking Sector

Abstract

The goal of this paper is to empirically assess the level of banking competition in selected Middle East and Northern African (MENA) countries. The analysis employs the estimation of a nonstructural indicator (H-statistic) introduced by Panzar and Rosse and draws upon a panel dataset of eight MENA countries (Algeria, Egypt, Israel, Jordan, Morocco, Oman, Saudi Arabia, and United Arab Emirates) over the period 1997-2012. The empirical findings are robust towards three different panel data econometric techniques (Ordinary Least Squares, Pooled Generalized Least Squares with Fixed Effects, and Generalized Method of Moments) and consistent with other similar studies, providing sufficient evidence in favour of a banking monopolistic competition regime. Furthermore, the estimation of three other alternative measures of competition (Lerner index, adjusted Lerner index, and conduct parameter) provides similar results, revealing that the banking sector in the MENA region is characterized by a low level of Significant Market Power (SMP). Overall, the analysis shows that, despite similarities in the process of financial regulatory reforms undertaken in the eight MENA countries, the observed competition levels of banks vary substantially, with Algeria and Morocco consistently outperforming the rest of the region.

Is the MENA banking sector competitive?

“…Evidence of the degree of competition using P -R methodology on the MENA banking sector is extended in Turk-Ariss [7] who investigated the degree of market power and competitiveness of 12 banking markets in MENA, finding that, with the exception of North African countries, banks in the region operate under monopolistic competition. Polemis [31] assessed the level of banking competition in eight MENA economies over the period 1997-2012 and confirmed evidence in favour of a monopolistically competitive industry, in line with Turk-Ariss [7].…”

Electricity regulation and FDIs spillovers in the OECD: A panel data econometric approach

“…For this reason, we utilize a GMM estimator developed by Hansen (1982). This estimator takes into account the unobserved time-invariant bilateral specific effects, while it can deal with the potential endogeneity arising from the inclusion of several control variables (Cambini & Rondi, 2010;Polemis, 2015). Finally, we employ the difference Generalized Method of Moments (DIF-GMM) estimator (Arellano & Bond, 1991) for the coefficients in Eq.…”

Efficiency Analysis of Islamic Banks in the Middle East and North Africa Region: A Bootstrap DEA Approach

“…This was argued by the fact that MENA Islamic banks suffer from a legal framework that is not adapted to their specific nature, a scarcity of qualified human capital, and a lack of diversification and innovation. In addition, they operate in less competitive banking markets (see Polemis [43], Apergis and Polemis [44], among others). These conditions are more favorable for conventional banks which enjoy several advantages over Islamic banks because of their bigger asset size, better access to financial markets, long history and experience, more developed technologies, etc.…”