Based upon the indicators of market structure, this paper tests the relevance of Structure-Conduct-Performance (SCP), Relative Market Power (RMP), and the Efficient Structure (ES) paradigms for banking industry of Pakistan. We use a (balanced) panel data from 24 commercial banks of Pakistan from the year 1996 to 2015. Descriptive statistics and the formal tests suggest that: (a) there is a weak association between the indicators of market structure and banks' performance in case of Pakistan; (b) the empirical evaluation results do not provide meaningful support to SCP or RMP paradigms; and (c) the ES paradigm is more relevant in case of Pakistan. At policy level, the findings of this paper suggest that the focus of policymakers should be to improve the efficiency of banking sector, as the excessive focus on indicators of market structure like concentration ratio to improve competition in the banking sector could be counterproductive.

The banking sector of Pakistan has witnessed a notable transformation in its structure and business activities following the implementation of financial sector reforms since the early 1990s. Specifically, the reforms helped transform a repressed financial sector into a market oriented and sound financial sector, predominantly owned and managed by the private sector. How these developments have impacted competition among the banks is still an open question.This study attempts to answer this question with the application of a recent approach to measure competition: Boone indicator of competitiveness. This measure postulates that inefficient firms (banks) in a competitive environment are punished harshly, and there is an output reallocation from inefficient to efficient firms/banks. We have estimated elasticity of market share to marginal costs for 24 banks in Pakistan, using a balanced panel of bank level (annual) data for the year 1996 to 2015. Marginal costs are obtained indirectly by first estimating a translog cost function using earning assets as an output, and cost of financial capital, physical capital and labor as inputs. The estimated Boone Indicator value of negative 0.31 is significant and suggests that inefficient banks have been losing their market share to efficient banks over the estimation period: a reflection of underlying competitive environment. Increasing value of Boone indicator (in absolute terms) over the period of study suggests that competition among the banks in Pakistan has increased over time.

Promotion of innovation and S&T enables economies to achieve sustainable economic growth. In addition, firms engaged in medium- to high-tech production tend to gain more from innovation and are, on average, more productive compared to enterprises which are limited to low-tech systems. Innovation is, in turn, inextricably linked to the availability and nature of financing. Empirical studies in developing countries reveal that bank financing and FDI can play a vital role in this regard. This paper provides an overview of: (a) the role of financing in facilitating innovation and S&T; (b) State Bank of Pakistan’s policy initiatives to make financing available, both in general, and also to specifically facilitate innovation and S&T in the country; and (c) the role of innovations in expanding access to finance in Pakistan.