Cross-Country Determinants of Banking Competition: Does the Institutional Quality Matter?

Abstract

This paper utilizes the quantile regression approach to shed new light on whether differences in the institutional quality across countries matters to the determinants of banking competition. To this end, structural measures of the degree of banking competition for 61 countries during the period 1996-2006 based on the Panzar-Rosse model are used in the estimation. The evolution of the level of banking competition reveals the heterogeneity across countries over a period of one decade. The empirical results show that regulatory quality in comparison with government effectiveness and the control of corruption are significantly positively correlated with the degree of banking competition, implying that with better regulatory quality a country will positively encourage competition in the banking industry across countries.

Keywords: Banking Competition, Cross-Country, Panzar-Rosse H, Quantile Regression

JEL Classification: D4, G21, L11, L13